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"Trichet&amp;#8217;s nightmare?\n\n\u00A0You could knock Europe\u2019s banks over with a feather.\nFinancial institutions across the Continent share a terrifying trait with Lehman Brothers before its 2008 collapse: they rely too much on borrowed money, especially the cheap, short-term loans that are vulnerable to a market shock.\nThat\u2019s not exactly a handy characteristic when a Greek default seems almost inevitable. European policymakers this weekend failed to agree to terms on a 12 billion-euro ($17 billion) bailout loan due next month to Greece, warning that the Greek government must first show it is taking austerity seriously. Apparently mere riots aren\u2019t enough for these guys.\nWhat\u2019s notable is that the most reckless banks, by these measures at least, reside not in\u00A0gonzo Greece or profligate Portugal, but in the allegedly responsible states at the so-called core of Europe, Germany and France \u2013 the very banks that are most exposed to a Greek default, with some 90 billion euros ($129 billion) at stake.\nThough it\u2019s hard to open the business section lately without finding a story about Germany\u2019s economic renaissance, thrift and prudence don\u2019t seem to characterize German banks. They hold 32 euros in loans for every euro of capital they have on hand, according to International Monetary Fund data. Lehman\u2019s leverage at the time of its collapse was 31-1, if you\u2019re keeping score at home. Either way it means a 3% loss leaves the taxpayers picking up the tab. Yes, that again.\nThe Germans aren\u2019t alone in Lehmanville: Belgian banks are using 30-1 leverage and French ones 26-1, the IMF numbers (see chart, right) show. All told, banks across the 17-country euro area average 26-1 leverage \u2013 double the ratio in the United States. Against all odds, European institutions have managed the nifty trick of making U.S. banks look good.\n\nIf the European leverage numbers sound familiar, it\u2019s because they are in line with the leverage ratios seen at the big U.S. investment banks before the financial markets started their nervous breakdown in 2007. Lehman and Bear Stearns, the smallish investment banks that gorged on real estate during the bubble, \u00A0were both leveraged at more than 30-1 while Goldman Sachs \n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\tGS\n\t\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\n\t\t\t, Morgan Stanley \n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\tms\n\t\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\n\t\t\t and Merrill Lynch were well into the 20s.\nAnd in another similarity, the European banks are heavily reliant on short-term market funding, from sources such as the U.S. money funds that are among the biggest wholesale lenders on the planet. History shows that a market panic can make those funds suddenly unavailable, potentially putting an already stretched European Central Bank even more on the spot.\nYet it&amp;#8217;s not clear the Europeans have picked up just yet on how this year might come to rhyme with 2008.\u00A0While Germany has backed away from its demand that private sector lenders be forced to accept reduced repayment terms, there is still no sign that Europe\u2019s leaders will soon come to their senses and hammer out a package that ends the siege once and for all.\nAll this tightrope walking is unnerving the staff at the IMF, which warned last week that \u201Cthough there has been progress on banking system repair, the pace is too slow.\u201D\nFor now, there is no reason to believe a default is imminent or that the banks would be unable to handle the Greek storm. Liquidity is still ample and the financial system isn\u2019t as hyped up as it was three or four years ago. But the sight of overextended banks in the middle of a crisis is never reassuring, no matter how familiar it may be."^^<http://www.w3.org/2001/XMLSchema#string>
<http://fortune.com/2011/06/20/europes-sickly-banks/?iid=HP_River/>