Blog #8: Germany's Banks Weakening

Jack Ewing's article in the New York Times was about the Germany's main weakness in its economy. According to the debt ratings agency, Moody's Investors Service, the countries major weakness is its banking system. The banks appear to be suffering from lacking profits, increase in risks, and improper reserves to account for losses. The banks have been able to benefit from the "haven" status from all the surrounding turmoil, they were able to borrow money at much lower rates than other countries in the Euro Zone. On the other hand, just before the crisis struck Germany made the decision to invest in Spain and Italy because of the better investment opportunities at the time. Even four years after the start of the crisis, Germany is still exposed to the problems. Moody's says that in relation to the size of the country, there are too many banks, this has a detrimental effect on lending rates  and profits.Marginal pressure is caused by decreasing interest rates and strong competition, this pressure weakens the banks revenues and profits even more. National regulators in the European Central Bank (ECB) are favouring their countries banks and gaining unfair advantages, so new regulations are being implemented by the ECB. These weak regulations of supervision is what landed Spain in the situations its in now. German leaders are holding out on releasing control of small banks and mid-sized banks. Over forty lenders were examined in Moody's report, that accounts for 85% of loans in Germany. Moody's stated, "Many of the more retail-oriented German savings banks and local cooperative banks are less stressed, although they, too, face growth and margin pressures," Banks in Germany are often owned by local governments, which could lead to lending decisions being "skewed" by political intervention. If Germany's banks take a turn for the worse, then there goes the continents strongest economy. Without that assurance of at least one stable country in the E.U. it's hard to say what sort of panic and civil upheaval would ensue.
http://www.nytimes.com/2012/10/20/business/global/moodys-warns-of-weakness-in-german-banking-sector.html?ref=business&_r=0