September 2011
Banks: Europe’s banks have not done enough to get their balance sheets into shape
Investors struggle to read banks’ financials and don’t trust them. Big doubts have grown up in the past few months over inputs to the calculations by which some banks seem to have produced favourably low ratios of risk-weighted assets to total assets.
Stress is already evident in the funding markets. Money-market funds in the US have been cutting their holdings of European banks’ short-term dollar debt. A build-up of bank deposits at the ECB suggests banks are becoming less willing to lend to each other and more inclined to hoard cash and deposit it with the central bank.
