The perception that the large banks in Europe could present as much of a financial problem as the debt of sovereign nations do has grown rapidly recently. Spain’s bailout of Bankia will cost over $23 billion by some estimates. Greek banks also expect to get aid from the government because of the write-downs they needed to take on Greece’s paper.
If Greece does leave the EU, the estimate of the costs to banks in the region have rise above $1 trillion. That amount is more than the supposed cost of salvaging Greece, Portugal, and Spain. It is not clear where the money might come from.
Many local governments cannot afford to provide the aid. In theory, the money could come from the ECB. And, less likely, the source could be the region’s bailout funds, worth over $700 billion, meant for the area’s countries. It is hard to see how a mechanism could be set up for that capital to go to banks
Douglas A. McIntyre
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