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French Bank Woes Add to Euro Pressure

The news just keep pouring in. French banks are under immense pressure as the voices that talk about recapitalization of the banks are becoming very loud and very scary.  

EUR/USD is now testing low support at 1.3440 – an important line separating ranges. Here are three fresh updates from the French front.

1)  “Signs of an institutional bank run” says Mohamed El Arian, which has a lot of influence as the  chief executive and co-chief investment officer of Pimco in regard to the French banks, which “may tip Europe back to a full blown crisis.

2) After a lot of denials, EU leaders begin acknowledging the need to recapitalize banks. Fast. EU official  France’s Michel Barnier said that he “cannot rule out” a situation where banks may need state aid, although he preferred that the capital will be raised from the private sector.

3) And speaking of the private sector, France’s largest bank, BNP Paribas is seeking a recapitalization through an investment from Qatar. Officially, the huge bank has sufficient funds. But, executives are flying to the Middle East in order to discuss raising fresh capital.

In addition:

This came several weeks after EU officials  snubbed at a warning from the managing director of the IMF, Christine Lagarde (also from France) about an urgent need for recapitalization.

One of the main concerns of French banks is the exposure to Greek sovereign debt, something that was not taken into account in the stress tests made just in July.

EUR/USD is at a 7 month low due to these issues but also due to weak economic data from the euro-zone and the disappointment from Ben Bernanke’s twist.

Further reading: Societe Generale is leveraged 28:1 according to internal numbers. Lehman Brothers was leveraged 31:1 before the downfall.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.