Whilst we feel like the economic squeeze is tight in the United States, what we don’t realise is that we are fairly lucky in comparison to our brothers across the water.
The economic downturn in 2008 eliminated banks in both the United States and in Europe, without much difference to be seen between the two. However, this year has seen the Federal Reserve decide to pull out bond-buying injections of money into the banks here, whilst Europe is still struggling along.
Credit is being held under tight control over the pond, but American banks are opening their coffers to lend – although, unsurprisingly, not to Europe.
Nomura, a bank based in the United States, estimates that the loan growth in this yearly quarter is the most rapid since the year of the economic crisis. That is an amazing statistic.
So why are banks here doing so much better? It is because our banks have managed to raise some serious capital since 2008, to a level where core capital has been met on 9% of assets. This is above the United States’ regulations on core capital.
The Federal Reserve, the United States’ central bank institution, has created a surplus of dollars by buying governmental and mortgage bonds and creating money reserves to the sum of €1.5 trillion. This has helped keep the economy flush with money, and the scheme has been so successful that the Federal Reserve is due to stop its “quantitative easing” program very shortly.
Moody’s, the financial ratings agency, estimates that the largest banks in the United States are in possession of three to eleven times their short-term borrowings in their liquid assets. At least half of these assets are thought to be in the keeping of the American branches of European banks, especially from Germany, Switzerland, Scandinavia and France.
This seems confusing when you think about it – surely if Europe has a hold on a fair bit of American dollars, the dollar shortage that has been causing the increase in LIBOR should not be happening. However, though there are banks holding United States dollars, the ones seeking dollars are not subsidiaries of American banks.
Though Europe is slowly pulling out of the recession, America seems to have found its feet a lot quicker. We can be thankful that we’ve seen the worst of it off, and hope for better across the water.