Default would destabilize banks, cost hundreds of billions
A Greek default would be ?highly destabilizing? for banks, causing losses that ?far exceed? the size of their loans and investments there, according to Moody?s Investors Service.
European banks would lose 34.4 billion euros in a worst-case scenario, less than the total 95 billion euros of outstanding Greek assets they hold, Moody?s said in a note.
The major risks come from plunging investor and depositor confidence, and increased concern that governments may be unwilling to support lenders, Moody?s said.
?A Greek default has the potential to undermine the capital markets,? Moody?s said. ?Counterparties, including other banks, may become risk-averse and withdraw funds where there is even slight concern about exposure to Greece or other peripheral EU sovereigns.?
Meanwhile, BNP Paribas said on Monday that a ?disorderly? restructuring of Greek debt could cost ?several hundred billion? euros, meaning that new loans or an extension of bond maturities for the country would be more effective.
?It costs 30 billion euros to keep Greece going for another year,? Paul Mortimer-Lee, global head of market economics at BNP Paribas in London, said in a conference call, according to Bloomberg.
?With a haircut of 50 percent, the net cost to the public sector would be 15 billion. If there is a disorderly restructuring and a big contagion effect to banks and to other peripherals, then the costs might be several hundred billion, so kicking the can down the road is a cheap form of insurance.?
