The market focus at the moment is on the exposure of French banks to Greece. But be in no doubt how exposed British banks are to eurozone sovereigns and corporations.
I’ve written about the figures before.
But this chart (courtesy of a report by the Ernst and Young ITEM club) tells the story visually.
Germany gets gold, France silver. And then it’s us. The report estimates that the overall exposure of British banks to the economies of Greece, Ireland, Portugal and Spain is around $430bn, or 19 per cent of our GDP. If the eurozone unravels and those debts fall dramatically in value (or even go into default), the fact that we’re not members of the single currency will not protect us.
Incidentally, you might wonder what British banks were doing buying up all that eurozone debt in the first place. The Vickers commission, implicitly, wondered the same thing. That’s why it recommended that only British retail and corporate lending should be inside its ring fence. If bankers want to speculate by buying eurozone securities, they should surely do it without an implicit UK government backstop.
Tagged in: banks, default, Ernst and Young Item Club, eurozone, Sir John Vickers
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