We’ve posted several pieces recently about Europe’s over banked and undercapitalized financial system. The markets have pounded European bank equities this year and forced the eurozone political leaders to cobble together a bank recapitalization plan, which we all wait for on pins and needles.
No other chart illustrates the vulnerability of European banks than the following. We use the simple common equity to total asset ratio, which excludes the risk weighting of assets and tiering of capital. It may be too simplistic and distort cross-country comparisons, but it is certainly revealing, if not shocking. The bank recapitalization in Europe will be a difficult task and it’s no wonder they need more time to reveal the “plan.” Stay tuned.