Usually it is banks that put customers under a microscope before lending them a penny. But in Europe banks are the ones now facing scrutiny before investors, companies and savers will lend them any cash. Faced with an investor strike, banks are putting a halt to new loans and selling or pawning all they can. Unless the investor strike lifts soon, Europe risks a credit crunch. At worst, there may even be bank runs and failures.
In one sense, a slow bank run is already taking place in the market for bank bonds, which in happier times provide the long-term and stable funding that allows bank regulators to sleep peacefully at night. Since July these markets have frozen up almost completely for European banks. Bond issuance has plunged and has shifted towards secured bonds, which are backed by assets that investors can grab if the bank defaults.
David Lyon of Barclays Capital, an investment bank, reckons that just €17 billion, that's $24 billion in unsecured European bank bonds have been sold since the end of June, compared with €120 billion in the same period a year earlier. He says: "In the context of the requirement, this is a paltry amount of funding."