A senior Slog credit management source revealed last night that at least three German banks are ‘frantic’ about the failure of their lobbying of the Swiss to relax still further the Basle III agreements.
After heavy pressure applied late the week before last, German officials continued to balk at the compromise rules aimed at shoring up the eurobanking system. Their main bitch – that the rules would unfairly penalise the thousands of saving and cooperative banks financing small and medium-size businesses in Germany – was not taken seriously by the Slog’s informant:
“It’s the same old same old. This process has been going on since early Spring. The larger banks have a very serious capital adequacy problem and a hugely toxic lending book from the ClubMed boom days. The Germans love to be sanctimonious about how thrifty they are, but this is an obvious attempt to cover up former profligacy.”
The Basle Committee has already relaxed some of the more stringent rules, but the key German banks remain intransigent about wanting further relaxations. Last week, these same banks were the worst stress-test offenders for not declaring sovereign debt realistically.
One can’t contain a cover-up of this magnitude for long. The banks no doubt hope to restore their capital by effortless investment in German bonds. If they restrict lending to business, however, then this plus the imminent crash awaiting Germany’s neighbours will do for them. But probably well before then, the Spanish or Portuguese solids will start hitting the fan.