Deposit Flight at European Banks Raises Risks

Money is flowing from European deposits to gold and a lesser degree US Dollars. This is the reason why early US bond shorts must have deep pockets. Money always flees when confidence is shaken. If it's shaken badly, and old-fashioned bank run will emerge without warning.

Headline: Deposit Flight at European Banks Raises Risks

European banks are losing deposits as savers and money funds spooked by the region’s debt crisis search for havens, a trend that could worsen economic and financial conditions.

Retail and institutional deposits at Greek banks fell 19 percent in the past year and almost 40 percent at Irish lenders in 18 months. Meanwhile, European Union financial firms are lending less to one another and U.S. money-market funds have reduced their investments in German, French and Spanish banks.

While the European Central Bank has picked up some of the slack, providing about 500 billion euros ($685 billion) of temporary financing, banks are cutting lending, which could slow growth in their home countries. They’re also paying more to keep and attract deposits -- or, in the case of Italy, selling bonds to retail customers for five times the interest they offer on savings accounts -- which will erode profitability.

Source: bloomberg.com