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<blockquote data-quote="Hypno" data-source="post: 1150100" data-attributes="member: 12416">@nek, a typical bank is leverered 5-10 to 1.&nbsp; Most of the debt us owed to depositors.&nbsp; That's actually really bad because most of it is due on demand, and not committed for a fixed term.&nbsp; So the right hand side of the balance sheet is 80 or 90% liabilities, mostly deposit liabilities, and equity might make 10 to 20% of the balance sheet.On the left hand side of the balance sheet are assets, loans and government bonds. So if your a French Bank, you could buy a German Bond at a price that pays you a negative return, or you could buy in Italian bond that pays you in above-market return. But if Italy leaves the Euro, they would do so for the sole purpose, or primary purpose, of devaluing their currency. If that happens, the bonds won't maintain value in Euros. They'll be repaid in Italian lira. the French banks will face big losses, and depending on the magnitude of those losses, could become insilvent.Because Italy is part of the Euro system, they can't unilaterally devalue without leaving the Union.The euro currency is very strong relative to their economic conditions; if they want to jump start their economy, they need to devalue.</blockquote>

[QUOTE="Hypno, post: 1150100, member: 12416"] @nek, a typical bank is leverered 5-10 to 1. Most of the debt us owed to depositors. That's actually really bad because most of it is due on demand, and not committed for a fixed term. So the right hand side of the balance sheet is 80 or 90% liabilities, mostly deposit liabilities, and equity might make 10 to 20% of the balance sheet. On the left hand side of the balance sheet are assets, loans and government bonds. So if your a French Bank, you could buy a German Bond at a price that pays you a negative return, or you could buy in Italian bond that pays you in above-market return. But if Italy leaves the Euro, they would do so for the sole purpose, or primary purpose, of devaluing their currency. If that happens, the bonds won't maintain value in Euros. They'll be repaid in Italian lira. the French banks will face big losses, and depending on the magnitude of those losses, could become insilvent. Because Italy is part of the Euro system, they can't unilaterally devalue without leaving the Union.The euro currency is very strong relative to their economic conditions; if they want to jump start their economy, they need to devalue. [/QUOTE]

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