LONDON, England - September 15, 2011 - European banks are leaking deposits as savers and money funds are spooked by the region’s debt crisis, a trend that could worsen economic and financial conditions.
Yesterday, Moody’s cut by one notch the long term debt rating of Credit Agricole and Société Générale, France’s second- and third-largest lenders by assets.
It cited the eurozone sovereign debt crisis and concerns about "the structural challenges to banks’ funding and liquidity profiles". BNP Paribas, France’s biggest bank, was kept on review for a possible cut.
Retail and institutional deposits at Greek banks have fallen 19% in the past year, and almost 40% at Irish lenders in the last 18 months.
European Union (EU) financial firms are lending less to each other and U.S. money-market funds have reduced their investments in German, French and Spanish banks.
While the European Central Bank (ECB) picked up some of the slack, providing about 500 billion euros of temporary financing, banks cut lending, which could slow growth in their countries.
European banks also paid more to keep and attract deposits - or, in the case of Italy, sold bonds to retail customers for five times the interest offered on savings accounts - which eroded profitability.
"All of this is symptomatic of a lot of fear in the European financial sector," said Kash Mansori, senior economist at Experis Finance in the U.S. "It shows that even European banks don’t trust each other anymore, so they’re taking their money out of the EU system."
