Belgium to buy troubled Dexia bank for 4 billion euro
Dexia among the first to new squeeze on European credit markets
Belgium has announced that it will buy the national subsidiary of embattled bank Dexia for 4 billion euro or $5.4 billion ad provide tens of billions of euros in new guarantees. Dexia was among the first victim in a squeeze in European credit markets.
The announcement this week was triggered by other banks' increasing reluctance to lend to it due to its exposure to highly indebted eurozone states like Greece and Italy, as well as struggling municipalities in the United States.
All banks depend on loans for a large part of their daily financing, but these loans can be quickly withheld if they sense there is a danger that a counterpart might collapse and not repay the money. Such fears increased last week, which prompted Dexia, which had a larger dependence on such funding than many of its rivals, to need rescuing from the government.
Belgium's caretaker prime minister Yves Leterme said the nationalization was necessary to insulate the Belgian retail bank from the risks of the wider group, Dexia SA. Leterme said support from the state ensures that all of Dexia's clients "can be sure and certain that their money is in full security."
In addition to the nationalization, the governments of Belgium, France and Luxembourg will provide an additional 90 billion euro, or $121 billion in funding guarantees for the bank for up to 10 years.
Belgium will provide 60.5 percent of these guarantees, 36.5 percent will come from France and the remaining 3 percent from Luxembourg.
Dexia's board is also in negotiations with French banks Caisse des Depots et Consignations and La Banque Postale to find a solution to the financing of French local authorities, in which Dexia plays an important role.
Announcement of the bailout followed marathon negotiations between the three governments and the bank's management.
Officials were worried that a possible collapse of the bank would exacerbate an already tight funding environment for banks in Europe. Analysts are warning of a credit crunch similar to the one that followed the collapse of Lehman Brothers.
European leaders are now pushing banks to shore up their capital cushions to avoid such a scenario. German Chancellor Angela Merkel and French President Nicolas Sarkozy said Sunday that they were working on a coordinated plan to recapitalize European banks that would be completed by the end of the month. Greece, meanwhile, said that it had to rescue local lender Proton Bank.
© 2011, Catholic Online. Distributed by NEWS CONSORTIUM.
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Pope Benedict XVI's Prayer Intentions for January 2013
General Intention: The Faith of Christians. That in this Year of Faith Christians may deepen their knowledge of the mystery of Christ and witness joyfully to the gift of faith in him.
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Keywords: Dexia, Belgium, France, Sarkozy, Merkel
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