Which Country's Banking System Is At Most Risk?

Previously, we took a look at European banks to see which one had the largest sovereign exposure to Ireland. Here is a very interesting chart from the Bank for International Settlements that shows total foreign exposure to Greece, Ireland, Portugal, and Spain by bank nationality. This is very important because it shows not just sovereign exposure but also total exposure (consumer lending, lending to the public sector, etc). The information is current as of the end of Q1 2010.

The most alarming statistic from the report is that total worldwide exposure to Greece, Ireland, Portugal, and Spain amounts to a whopping $2.6 trillion, which shows that any default could quickly collapse Europe and have significant consequences for the entire world.. The two countries who should be praying for a bailout of Ireland are Germany and Great Britain since they are they have the largest exposures. Better fire up those ECB printing presses!

Click chart for larger image
























Here is a chart I made based on the BIS report which is easier to follow and more colorful. One thing to remember about the BIS report is that it does not include exposures of banks' headquartered in the respective country.


















From the BIS report:

Banks increase exposures to Greece, Ireland, Portugal and Spain

BIS reporting banks increased their total exposures to residents of Greece, Ireland, Portugal and Spain in the first quarter of 2010, despite mounting market pressures on these countries. The $109 billion (4.3%) combined expansion brought BIS reporting banks’ aggregate exposures to that group of economies to $2.6 trillion.

Total exposures to Greece, Ireland, Portugal and Spain increase. Total exposures to Greece grew by $20.7 billion (7.1%). The expansion was driven by a $21.6 billion (29.3%) rise in BIS reporting banks’ other exposures, most of which reflected an $18.1 billion (54.0%) increase in their credit commitments to residents of the country. By contrast, foreign claims on residents of Greece declined by $0.9 billion (0.4%). Claims on non-banks and claims on the public sector both went up (by $4.0 billion (4.7%) and $0.8 billion (0.8%), respectively). However, those increases were more than offset by a $5.7 billion (16.9%) contraction in foreign claims on banks located in the country.

BIS reporting banks also increased their exposures to the residents of Spain and Portugal. Despite the fact that foreign claims on Spain declined by $10.3 billion (1.2%) during the period, overall exposures to residents of the country expanded by $17.3 billion (1.5%) due to a $27.6 billion (11.8%) rise inbanks’ other exposures. Meanwhile, banks increased their total exposures to Portugal by $10.6 billion (3.2%). Both foreign claims and other exposures went up (by $5.8 billion (2.3%) and $4.8 billion (6.1%), respectively). Spanish banks increased their exposures to residents of Portugal by $5.2 billion (4.7%), more than banks headquartered in any other country.

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