getting funding under the table, charged to the Greek
government's tab, so that Greek people can have
a nice, quiet bankrun without it leading to the end of
the Eurozone.
Great. So, the Greek banks better play it safe and keep
a float in the till, for times of need.
NAAAAaaaahhh.
They've decide to rehypothecate, offshore it and lend
it to one another to buy other banks. Well, wouldn't you?
As a business, you're getting money you didn't ask for,
from idiots with bigger fish to fry. I would've just gone
to Vegas.
I like the tone of the Reuters story below. They call out all
the heavyweight banking experts in big, important
governments to say
"stop f%$^&*king around, Greecers.
Only we're supposed to do that"
AAhHAhAHAahahahahahhhahhaahAHAhah
Observe: Reuters
Most bank regulators dispute Greek stance on
"virtual capital"
Thu, Aug 02 15:08 PM EDT
* Loans for banks' rights issues should be penalised
-survey
* Greek central bank says nothing to stop such loans
* Germany says loans need to be "deducted"
from capital
* Expert says practice creates "banks as big as
you like"
By Stephen Grey
LONDON, Aug 2 (Reuters) - European banks should face penalties if they loan cash for share issues
by other banks, national regulators from across Europe told Reuters. This comes after a Greek bank
was found to have raised money from offshore companies financed by other
institutions.
A survey of central banks and other authorities found
that in most euro zone countries such
transactions, if discovered, carry a hefty price: banks providing loans for
the purpose of investing in another bank's share capital should deduct an equivalent amount from their own
capital.
The findings come after a Reuters report exposed how a
major bank in Greece raised share capital via
special offshore companies funded by other Greek banks. Some academic
experts described the scheme as tantamount to raising "virtual capital" through a Ponzi
scheme.
The Bank of Greece, which regulates the country's
banks, said that nothing prevented
unconnected banks funding each other's equity, raising concerns the
technique might be widespread.
"European Union law does not prohibit granting
loans to an entity (person or organisation) in order to participate in a share
capital increase of another credit institution," the Bank of Greece said
in a statement.
Since 2008, Greek banks struggling with the financial crisis have raised more than
13 billion euros ($15.8 billion) of new capital. The Bank of Greece did
not respond to an emailed query from Reuters when asked how much of this money
was raised through indirect loans from other Greek banks.
In July Reuters reported that at least one fifth of a capital-raising last year by Piraeus Bank,
Greece's fourth-largest lender, involved shares bought by offshore
"special purpose vehicles" with money borrowed from other banks.
Those funds included 65 million euros borrowed by the
family of Piraeus's chairman, Michael Sallas, to finance an undeclared stake of
over 6 percent in the bank he heads.
Several banking officials in Athens said it was common
for senior bankers in Greece to finance shareholdings in their own institutions
with loans from other banks.
Sallas
declined to answer questions on the issue. Piraeus is suing Reuters for an
earlier story about the bank renting
properties owned by companies run by Sallas and his family, and wants 50
million euros in damages.
"MAKE BANKS AS BIG AS YOU LIKE"
According to the European Banking Authority (EBA) and
other banking experts, loans to finance shares in other banks should normally
result in the lending banks taking a deduction from their own capital
equivalent to the value of the loans.
Otherwise, said Hans-Peter Burghof, professor of
banking and finance at the University of Hohenheim, Germany, "You can produce as much equity as you like
and make banks as big as you like."
A survey by Reuters of euro zone banking supervisors
and central banks found that a majority agreed with Burghof's view, though Spain, Luxembourg and Slovakia
supported Greece's position.
Asked about loans to a special purpose vehicle for the
"sole purpose" of buying shares in another bank's share issue, Germany's Bundesbank said
this amounted to an "indirect
holding of capital instruments" of another financial institution. A
spokesman said "such transactions will have to be deducted from the
investing bank's capital" under EU rules.
Austria's financial market authority said it took the same view and
"requires the deduction of holdings" from the lender's capital.
The Bank of France took a similarly tough line. A spokeswoman confirmed that under
French rules such lending should be declared.
"If it is an undeclared carried equity stake,
then there is a presentation of false accounts and an offence has been
committed. It's a crime." If declared, it should be deducted from the balance
sheet, she said.
The Netherlands
agreed, as did Finland. A spokesman for the Finnish regulator said:
"If this kind of business is done greatly across the local banking sector
it will create one
potential system risk of course."
Commenting on the survey, Simon Gleeson, UK-based
regulatory partner at law firm Clifford Chance, said there was undoubtedly some
"imaginary capital" in the European banking system. He said authorities may have
little incentive to dig too deeply into the issue in countries where banking
stability was a pressing concern.
British, and other major regulators, he said, tried
correctly to apply a "substance over form" approach, attempting to
consider the intention and effect of a loan scheme.
"If you have money going into a vehicle that has
been set up for the sole purpose of buying these capital instruments, then it's
an issue, and capital should be deducted by the lender," Gleeson said.
A few
regulators in the euro zone did not agree. A
Bank of Spain spokesman said: "Generally speaking, the law does not limit
who you can give loans to." Deductions applied only if the banks involved
were linked, he said.
Luxembourg's financial regulator said that "under European law the transaction
mentioned (a loan to invest in capital raising) is not illegal and no
deductions required".
A spokesman for the National Bank of Slovakia said:
"Yes, such loans are permitted, but there is no consequence on the field
of capital deduction."
Italy,
Belgium, and Cyprus did not respond to questions from Reuters on the issue, nor
did Britain's Financial Services Authority.
Gleeson said: "This is one of the areas where a single regulator would be the only
practical way of ensuring consistency between countries."
Yannis
Varoufakis, professor of economics at the University of Athens,
was blunter about the way Greece allows banks to raise capital via loans from each other while the country
relies on huge bailouts from the "troika" of the IMF, ECB and
European Commission.
"These are loans from one bankrupt bank to another bankrupt bank,"
he said. "It is scandalous the troika stays silent about this form of corruption while handing over billions of taxpayers' money to these banks." [that's a f^&king choice thing to say when that very type of activity is the only thing levitating the entire world banking structure- Costick67]
