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65% Chance of Banking Crisis by End November: Think Tank

65% Chance of Banking Crisis by End November: Think Tank
Published: Wednesday, 9 Nov 2011 | 6:48 AM ET Text Size
By: Patrick Allen

There is a 65 percent chance of a banking crisis between November 23-26 following a Greek default and a run on the Italian banking system, according to analysts at Exclusive Analysis, a research firm which focuses on global risks.

Having tested a number of assumptions in a scenario modeling exercise, the Exclusive Analysis team warned it is becoming less and less likely that EU leaders will simply “muddle through” and have made some bold calls with clear timelines on when the euro zone will be thrown into a major financial crisis.

The most likely outcome according to their analysis is a sudden crisis in which the US, UK and BRICs nations refuse to provide funding via the IMF for the euro zone. In a world where predictions are made with no time lines, the paper makes some bold predictions which can be held to account over the next three weeks.

In the worst case scenario, Exclusive Analysis expects the governments of Greece and Portugal to collapse due to a lack of consensus on how to handle the debt crisis leading to social unrest. German opposition to handing more funds to the EFSF rises, leading Germany’s parliament to actually reduce the money available to the bailout fund.

“In face of that, China and the other BRICs give clear signals that they will not support the bailout fund. The EFSF turns to the ECB , which refuses to print out the amount of money the former needs to bailout the PIIGS. In face of the EU’s failure to boost the EFSF, the European banks refuse to accept the 50 percent haircut on the Greek debt. Both the IMF and the ECB suspend payments to Greece,” said the report released on Tuesday evening.

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