When Banks Don’t Trust Banks

Trust breaks down in banking when investors question whether deposits are safe and when banks worry about loan repayment. Banks only keep a percentage of cash on hand, and a lack of trust can disrupt efficient lending and borrowing with that limited cash. Global banks could have a capital deficit of $1.5 trillion, by some reports, and troubled banks could request additional government assistance. “Market participants tend to agree on one point – if the European debt crisis is a contagion, it will probably not lead back into full-blown panic,” writes Pierre Paulden for Business Week and Bloomberg.com. Investors around the globe seek the highest quality of investments, and are prepared to transfer funds quickly. – YaleGlobal