Recession Global

Parex Bank is indeed for many years represented the Latvian equivalent of American dreams. Starting almost from scratch, its main shareholders were able to build a strong banking empire to compete in the Baltic market with Swedish banking giants. It was a tremendous success, which inspired the entire Latvian business. But to remain a major player on the market Pareks had to be continually build up assets. And, therefore, to build and passive part of the balance - deposits of individuals and syndicated borrowing.The specifics of the banking business in that traditional assets - loans, tend to have a long period of time. In turn, traditional liabilities - deposits and short-term syndicated loans to the contrary. Therefore, to maintain the liquidity of the assets of banks, is also traditionally placed in the portfolios of marketable securities. In general, more reliable and less volatile debt bonds. If necessary, return the deposit or a syndicated loan of money, part of the portfolio is sold. Then, as a rule, restored status quo at the expense of the new deposit or a syndicate. It is clear that it works only with maintaining a stable situation on the markets or small disturbances on them. However, what has the world financial markets in September-October 2008, unless a catastrophe can not be named. Experienced a massive drop and the stock market and bond market (why - see here).The most «absurd» situation appeared with Bonds. On the one hand, the issuer of securities may remain are creditworthy and are likely to retain the opportunity to repay the debt within a specified period of time. On the other hand the current price of those securities has fallen by 20% -40%.In other words, when the urgency to get the cache bank had to sell such securities, recording major losses. And if the value of the necessary cash has been great, for example to return a large syndicated loan, the losses could eat the entire capital of the bank.For similar problems in autumn 2008 was confronted by no one Pareks, as many banks around the world. And in fact, then the whole world banking system zamayachil ghost collapse (see here).However, output from such a situation is, and it has been applied previously (though not on this scale). Banks do not sell securities, and receive the necessary liquidity in the form of loans from the Central Bank under the pledge of the same securities or other assets. Under this arrangement, the Central Bank around the world joined in autumn 2008 in the global banking system billions of dollars. So the U.S. Federal Reserve (Fed), at the expense of such lending, increased its balance from August to December 2008 more than doubled - from 900 billion to 2.2 trillion.In particularly difficult situations and come to the aid of government, kredituya banks or going into their capital (for example - the U.S. program TARP).And today, when prices of most debt is almost back to pre-crisis levels, many banks have already saved return borrowed funds and reports on the resumption of profitability.What happen to our Parex? Unfortunately, the option of obtaining assistance from the Bank of Latvia has failed. Most of the assets of our banks are placed in dollars and euros, and lending them latami would lead to a sharp increase in lats mass. This, in turn, would put at risk the stability of lats, as the BC would never have gone. Here if Pareks was in the jurisdiction of the ECB, it could prove to be among the many banks of the euro, which had been rescued in a similar situation.This is another argument that you need to join the eurozone, and as soon as possible. As practice shows, it is better to be in the jurisdiction of the Central Bank with more assets, especially in a crisis situation.There remained only the option of obtaining assistance from the state. But with the help of all the state had to Pareks not the best way. Of course, for the government the situation was unique, not prescriptive. At that time, the practice of re-entry of capital into banks only began to «run» in the world's leading countries. However, whether the position of our government stronger outflow of money from the bank and the substitution of state means to be significantly lower.For example, well, it would be clear that not only our government (itself faced with the problems), but, more important, and powerful European Union will not allow the fall backbone of Latvian banks.Returning to the world situation can be observed that the current crisis dealt a severe blow to the banking business. This affected not only the weak and unskilled banks, but also the leading U.S. and European houses - the business elite. Went bankrupt, one of the largest American Investbank - Lehman Brothers with 640 billion in assets, and yes, all the American investment banking industry has virtually ceased to exist (and this is understandable - the main asset Investbank were just bonds and equities).In the world of banks' losses from the crisis is already estimated at more than $ 1.2 trillion. (data from Bloomberg). So all over the world have suffered heavy losses, many banks, too many ... but not all.