Europe’s largest insurer and one of its biggest bond investors, cut its forecast for U.K. growth next year to 0.4% from 1.9%, while the German DIW think-tank said last week it expected Brexit would cut 0.5 percentage points off Germany’s economic growth next year (from 1.4% to 0.9%). That means more bad loans and more provisions. Even on performing loans, banks in a weakening economy are generally unable to raise their own interest rates, despite often having to pay more for their own funding.
Finally, banking, more than any other part of the economy, is about confidence, and confidence is what is in short supply Friday. Nobody knows what is facing the banks in the next two years, but everybody is aware, especially in the Eurozone, how badly cross-border exposures could unravel, and how little fiscal space and monetary ammunition there is to support them after eight years of crisis policies.
