Euro banks need to deleverage

EUROZONE banks must de-leverage to the tune of €2-3 trillion even if ministers get past the hurdles of arranging euro-bonds and liquidity support, UBS analysts said yesterday in a note to investors.

If correct, the estimate means that Europe faces a severe credit crunch even if its political elites agree to issue jointly guaranteed bonds and the ECB launches quantitative easing.

“Assuming we get term funding guarantees and stability bonds (big ‘ifs’), banks will still need to shrink to meet onerous incremental regulatory demands,” the analysts write.