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Europe’s smaller banks face a long goodbye

While regulators’ attention has focused on those that are too big to fail, the financial institutions in Europe that face the sternest challenge might be those that are too small to get funding from investors. And those at risk could include some sizeable and well-known banks, as Phil Moore reports.

ON A DAY when the share prices of banks such as Barclays and Société Générale were falling by more than 10%, another cri de coeur, from a smallish regional Danish bank, is unlikely to have captured much attention. In mid-August, the chief executive of Denmark’s seventh-largest bank by assets, Spar Nord, was quoted as saying that it was increasingly difficult for banks of its size to access international funding, and would remain so for a while.

Seasoned watchers of the Nordic banking scene are unlikely to have been surprised by the news from Spar Nord, given the severity of Denmark’s bank resolution scheme, which is generally regarded as the harshest in Europe. There was nothing in August’s story to suggest that Spar Nord is in danger. But a number of smaller Danish banks have already gone to the wall, and Standard & Poor’s warned at the end of July that another 15 were at risk of default.

Denmark’s regional banks may face a range of funding pressures that are unusually severe even in these straitened times. But analysts have been warning for some time of a growing risk of polarization in the European banking industry between those with access to funding and those in danger of being shut out.

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