On Jan. 21, the oldest surviving bank in the world, Banca Monte dei Paschi di Siena SpA, reported that depositors have been initiating a series of bank runs which have put the financial institution on the precipice of collapse, with all attempts to calm account holders having so far failed.
In fact, since last Monday the share price of Banca Monte dei Paschi di Siena SpA has fallen over 46%, while overall stock markets around the world have experienced a 15-30% drop since the start of the new year.
Back in 2007, bank runs on the British financial institution known as Northern Rock ushered in the start of the global financial crisis that culminated in a collapse that would require taxpayer bailouts, and tens of trillions in central bank liquidity. And while we have seen a number of similar runs since that time in country’s like Cyprus and Greece, none of these occurred at a time when the entire financial system was in as dire straits as we have right now in several economies around the world.
A “run” has begun on Italian Banks, with Depositors taking out money in a PANIC, fearing they will lose everything if they leave their money deposited.
Banca Monte dei Paschi di Siena SpA’s shares shed one fifth of their value after plunging for a third consecutive day Wednesday, as the bank scrambled to reassure investors its finances are solid.
The bank said that it had suffered outflow of deposits as a result of market jitters and that its accounts had improved in the last quarter.
In February 2013, it emerged the bank was entangled in a legal scandal involving loss-making complex financial transactions, something that spooked investors and caused a deposit-outflow of “some billions,” the bank said in April that year.
But Mr. Viola’s words didn’t stop the massive selloff.
Trading in the bank’s shares was suspended for most of Wednesday’s session and shares ended up shedding 22.2%. Since Monday, the bank’s shares have lost 46% of their value, plunging to €0.51 ($0.56) per share. Since the beginning of the year, the bank’s share price has declined 58%. – Newsroom, Superstation95
Thanks to the decline in oil prices, and recessions in emerging markets, many large banks in the U.S. and Europe are having to face potential defaults in loans and junk bonds that equate to trillions of dollars of potential debt losses. And it appears that this growing banking crisis may be so dire that the Dallas Fed is alleged to have told banks to mask their mark to market values in order protect their failing securities from showing up as a negative on their balance sheets.
It was not too long ago that Wall Street speculation led to a financial crisis that nearly collapsed the entire global economy, and forced central banks, as well as sovereign governments, to bail out these bad bets to save the banks from complete default. And while many believe that reforms put in after the 2008 Credit Crisis were enough to protect the banks and the public in case they fell once again into a trap of rampant speculation, all one has to do is see the last narrative line from the film The Big Short, to know that Wall Street has learned little from the last crisis, and are once again making the same bad bets that led not only to bank runs, but to the destruction of many depositor’s assets just seven years ago.