The Austrian government has nationalized the insolvent bank Hypo Group Alpe Adria (HGAA). The financial institution, which has 40 billion Euros in assets, is the country's sixth largest bank. But, in relative terms, this is a very large bankruptcy using GDP at purchasing power parity, an American HGAA would have assets of $2.5 trillion, larger than any of the American banks. So, this is a very big deal and it speaks to the size of Austrian banks' international exposure, renewed risks in banking and the possibility of contagion.Think about that. The equivalent of a $2.5 trillion US bank... and it's only Austria's sixth largest bank. That is the definition of too big to fail... but it still doesn't sound right. $2.5 trillion? Ed explains further:
When I wrote the figure $2.5 trillion, I was thinking more Iceland or Switzerland than the U.S. initially because they also had/have outsized banking sector. But, the fact that this was the sixth largest bank and is the equivalent in assets to economy of Citigroup in America should tell you they will have major problems if asset prices in Eastern Europe fall.That's a relief. TARP for Austria!
(Ahh... the days of trolling.)