Guest Contributor – Wealth Protection Today (Germany) –
It was only yesterday that it became known that major European banks had to build up a security buffer, which in the end amounted to more than 200 billion euros. This will be done step by step and should increase the security. Institutions will issue bonds for this purpose. Perhaps this will even be 8% of the total volume of loans of these banks. However, you should know that the world becomes more risky rather than safer. And yesterday’s interest rate decision from the Fed, ie the US central bank, does not necessarily make the world better, even if many financial market participants cheered.
There are also plans in the US to make the money institutions safer. Just recently, a member of the Central Bank has told Fed that he wants to smash large banks into smaller ones. The “Bank of America”, “JP Morgan Chase”, “Wells Fargo” and “Citigroup” will be affected.
Smaller units should be protected against major impacts
If these banks were smaller units, then a crash in the segment or with a single bank would no longer attract such large circles. This, at any rate, is the hope behind the plan.
If you combine both control packages and plans, this looks pretty good. The banks are ultimately prevented from taking too much risk and extending too much loans.
Lazy, unpaid loans are the greatest risk to the financial markets. Then bank balances break down, claims to solvenous creditors are made immediately and the financing of various projects wiggles. In addition, the confidence in the financial markets itself then fades.
The deflection maneuver
However, this plan is unlikely. When it comes to banking regulation, this is a red herring. The biggest problem is not the banks alone, but above all the countries that are allowed to be at the lowest rates. At the expense of the taxpayers, who have to repay these debts at some point and, in addition, no longer receive any money on the Sparkonten.
Banking regulation looks more like central banks and banking supervisors wanting to unite even more power than they already do. The central banks determine the rate of interest on the financial markets through the interest they pay, for example, for government bonds and the deposits of commercial banks.
Thus, if the interest rates are particularly low in favor of the states, other less liable debtors of simple loans are also given. The banks, on the other hand, can afford to do this because in the end the state pays for itself with its tax credits or loans, which it can accept practically endlessly.
Risks will increase for us
This is evident in Italy, which has been shown in Greece and also in Germany – for example in the case of Commerzbank. Therefore, the suggested regulations change the good feeling at best. The framework conditions remain the same for years. The states are boosting money production and keeping interest rates low, even if these happen as last night.
The risk of becoming one of the bank’s clients one day is increasing by the “maneuvering” “higher equity buffer” or the futile attempt to smash big banks. The key to security before the next banking crisis is the governments themselves.
Therefore, the new safety rules are unfortunately pure cosmetics. Central banks continue to ensure that more and more money is being produced. Faster than the economy is growing. In the long run, this can only lead to a significant increase in the inflation rate. In addition, the risk of high credit losses by companies and parliaments in the coming years will continue to increase. Nobody can actually protect us from this.