http://dailybail.com/home/pimcos-el-erian-drops-the-f-bomb-french-banks-are-down-to-1.htmlUsually European banks have higher capitalization rates--that is, their assets minus their liabilities are more positive--than their American counterparts. Basically you want the banks to have enough capital reserve to be able to raise cash to pay their own creditors, including depositors at the bank.
Apparently this is not true of French banks, whose capital has probably been drawn down by bad loans made in the PIIGS countries.
The problem is spreading due to something called "contagion". Let's say that you had enough sense not to make loans in Greece or Spain, but instead loaned to "safe" France. Now your loan to a French bank is at risk. "Cascading defaults".
Private institutions around the world have sharply reduced short-term lending to French banks, while a plunge in bank shares since August has left bank equity trading at a 50% discount to tangible book value on average, he wrote.
At the same time, El-Erian noted that the ratio of market capital to total assets for the sector has fallen to 1% to 1.5% — far short of the range of 6% to 8% typically seen for healthier banks.
“These are all signs of an institutional run on French banks,” he wrote. “If it persists, the banks would have no choice but to de-lever their balance sheets in a very drastic and disorderly fashion.”
