Many European banks have used easy credit from the European Central Bank to expand their balance sheets rather than use the easy credit to slim down and cut the level of risk in the assets they hold.
By ANGELO YOUNG:
Some of Europe's largest banks aren't keeping up with their end of a deal to reduce their too-big-to-fail problems.
Instead of getting smaller, they've gotten comfortable enough with their dependence on the European Central Bank (ECB) to provide them with capital that they've increased their assets by €34.4 trillion ($45 trillion) in the year ended July 31, according to the ECB, instead of abiding by a pledge to trim assets by $1.2 trillion in that period.
The cycle of dependence on a central bank that oversees 17 independent banking systems all sharing the same currency has become one of the biggest issues in resolving the euro zone's banking crisis. Key to stabilizing the euro and holding the monetary union together is getting banks to sell risky assets at depressed prices or even at losses and to lend more money; basically to go back to their roots as smaller and leaner institutions to reduce threats to the global financial system from the too-big-to-fail syndrome of euro zone banks.
But according to analysts, with the ECB there to offer a cushion, some of the biggest banks in Spain, Italy and France -- Banco Santander, S.A. (NYSE:SAN), UniCredit SpA (BIT:UCG) and BNP Paribas SA (EPA:BNP) -- have grown rather than shrunk after the ECB decided in December to offer €489 billion. In February, it loaned another €530 billion.
Instead of deleveraging, the banks are leveraging. ...