Industry Sector Weekly by Lloyds TSB

Reports this week from the Wall Street Journal that a number of banks underestimated their exposure to European sovereign debt, combined with statements from the ECB executive board member Jorgen Stark that German savings banks would need to raise more capital, awakened concerns around European bank exposure to sovereign default risk. Sovereign credit risks still a concern

Reports this week from the Wall Street Journal that a number of banks underestimated their exposure to European sovereign debt, combined with statements from the ECB executive board member Jorgen Stark that German savings banks would need to raise more capital, awakened concerns around European bank exposure to sovereign default risk. Already a number of European banks such as National Bank of Greece and Deutsche Bank have announced capital raisings. Unsurprisingly, over the weekend Germany will be lobbying for an extension to the timing of Basel III enactment. Concerns are that the faster implementation will hurt the nascent recovery in global lending. With regard to sovereign credit risks, the stakes still look high for German and French banks, based on the latest default data implied from the CDS market, potentially leading to significant increases in capital requirements.

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