Economics: European Investors Fret at Costs If Rescues Are Needed

... 90 of Europe's biggest banks hold 4.7 trillion euros ($6.7 trillion) in short-term loans that must be repaid over the next two years. That burden alone is more than half of the combined gross domestic product of the 17 nations that share the euro currency.

Analysts point out that the top French banks report plenty of cash on hand: 150 billion euros in liquidity for BNP Paribas and 105 billion euros for Société Générale, according to a research report by Sanford C. Bernstein & Company. But analysts say unsettled investors are less concerned about the banks' current positions and more focused on fears that their lenders will abandon them if their top-grade collateral is impaired.

In fact, most European banks, including France's top institutions, appear to be in much better shape than their counterparts in Ireland and Britain were in 2007 and 2008 when they were forced into the arms of their governments. None of the banks are in the dire straits that pushed Ireland to take over Anglo Irish Bank or Britain to rescue the Royal Bank of Scotland.

The bank troubles now are not about liquidity, but instead solvency, said Mr. Boone, a visiting economist at the London School of Economics. Governments can solve solvency problems through capital injections and loan guarantees — but this just increases the potential liabilities of the government.

For more, see Investors Fret at Costs If Rescues Are Needed by Landon Thomas JR., August 11, 2011 at NYTimes.com.