BIS: German Banks Are Pulling Out Of Europe

The Bank for International Settlements didn't say so in so many words but this is an amazing graph:

From History Squared:

Interpreting Target2 Balances; German Banks are Pulling Out of Europe

The BIS, the central bank’s central bank, published a paper entitled “Interpreting TARGET2 Imbalances” by Cecchetti, McCauley, and McGuire (2012).

BIS international banking data, by contrast, point to the importance of TARGET2 balances as a symptom of a reduction by core European banks of credit previously extended to borrowers in peripheral Europe. These same data suggest that banks headquartered outside the euro area, particularly UK banks, boosted TARGET2 balances by hedging redenomination risk. As such, TARGET2 balances reflect not only concern regarding actual credit exposures but also potential currency exposures.

Ed Yardeni published a few charts of Target 2 Imbalances. Figure 1 shows that despite the reduction in interest rates, and the ECB’s pledge for unlimited printing, Target 2 Balances remain quite high.

Cecchetti, McCauley, and McGuire (2012) believe this suggests both foreign and European banks continue to harbor doubts about Europe’s future. 

The downtick in France’s (red) target 2 imbalances is also noteworthy. I’m very negative on French bonds....MORE