What impact will the sovereign debt crisis have on Eurozone banks?

摘要

We expect bank solvency to remain an acute concern for investors in coming months, given the risk of writedowns on banks' sovereign debt holdings and our expectation for a renewed deterioration in loan quality as economic activity slows. As a result, banks will face ongoing funding pressures. Although the EU plan to recapitalize banks aims to break the feedback loop between sovereign and bank risk, it is dangerously pro-cyclical. Banks are likely to try to meet the capital targets by shrinking their balance sheets.