French Bank Dexia Getting Ready to Fail, But This is Not a Bank Failure

Maybe the Term “Bank Failure” Doesn’t Translate into French

The French and Belgian governments are going to take over the French/Belgian bank Dexia and break it into pieces as a program to bailout the bank.



The Stoplight Means Stop
Operating



France's central bank governor and finance minister Wednesday said Franco-Belgian lender Dexia SA will be restructured in the coming days, but the fallout on public finances and the banking sector will be limited.

"I think there should be a solution tomorrow. It is undeniable that Dexia cannot remain in its current state. It's been hit by very bad management and a business model" with high liquidity needs,

The Bank has bad assets of about $165 billion and these will be segregated into a “Bad Bank” that will require government guarantees.  (“Bad Bank” is the term used by regulators when the create an entity to hold all the junk, worthless paper, bad loans etc that an institution acquired over time).

But lest anyone worry, this does not mean the bank has failed.

Bank of France Governor Christian Noyer added . . . "It's in no way a failure," Mr. Noyer said. "The different parts of Dexia will probably live their lives separately.

Well maybe this is the way they do things with failed banks in France, and the fact that the different parts will just live separately, well that's a very adult solution to a difficult marriage and it should make it easier on the children.

As for the condition of France’s banks

Both Messrs. Baroin and Noyer stressed that the impact on public finances will be limited. Indeed, Mr. Baroin noted that guarantees pledged to banking institutions don't increase debt levels according to official European statistics agencies.

. . .

Both French policy makers described Dexia as a "particular case" and played down the possibility that Dexia could be a precedent for other European banks.

"For French banks, they are very solid. Frankly, I'm much less worried about French banks than American banks," Mr. Noyer said. "We don't have more problems than others. Our banks are in very good health."

That “very good health” thing being the reason that France along with other relatively strong European economies are now having to look to  bailing out Greece, Portugal, Italy, Spain, Ireland so their banks will not fail.