End of the Euro? Back-Door Bank Runs in Eur. Have Started

New AmericanBob Adelmann

In his interview at King World News, James Turk, founder of GoldMoney and author of The Coming Collapse of the Dollar, noted in his travels around Europe that “there is one common trait, regardless of which country I am in: people are really frightened about the possibility of the collapse of the euro. Money continues to move out of the European banking system, which explains why central banks stepped in with some money printing last week.”

He then went on to explain that there are only three sources of funding available to a bank: its customers lending it capital through checking and savings accounts, the issuing of long-term bonds which it sells to bond investors, and short-term financing provided mostly through money market funds. If any of these sources dries up, it puts the bank almost immediately into a precarious financial position. He said that the day before the world’s central banks stepped in to make short-term money more available was “frightening:”

Even though I’ve been saying this has been coming, last week was truly frightening with the banking system about to fall into the abyss. Had the central banks not stepped in it would have been a Lehman moment.

Sadly, they haven’t solved the problem. They have bought time and whether that time is one or two weeks or maybe a month, we will soon find out.

Belgium’s largest bank, Dexia, with some 35,000 employees and nearly $25 billion of “core shareholders’ equity” at the end of last year appeared to have recovered from its near-death experience in 2008 when it required a $10 billion bailout. On July 15, 2011 the European Banking Authority applied a “stress test” to the bank’s finances, and it passed with flying colors. The authority reported that its safest asset — Tier 1 Capital — was 12.1 percent, and would fall to 10.4 percent only under the test’s “adverse scenario,” making it one of Europe’s safest banks.

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