"If the rate of contraction of the value of bank assets is greater than the rate of reduction in deposits, it is possible that a bank’s leverage could be increasing as its balance sheet shrinks."
I agree the acceptance of mark to myth, replacing mark to market is demonstration of this occurring and the regulations trying to paper over it
"Are you trying to say that the ECB will have to print money? I would agree with you on that."
Yes , but as well :) the ineffectiveness of money printing effort to date and a strong doubt if it can work at the scale that it needs to be successful.
Also in a movement of capital sense there is effectively a run on the PIIGS toward the stronger economy, if your Greek or Irish etc where do you put your Euro? Then if things get desperate how do you change your Euro to something else?
Which considered with the earlier question re money printing.....Even if you do print enough how can you keep it in the places you want it to stay? How do you maintain adequate money supplies in Greece for instance? The last chart shows they are having big trouble maintaining money supply in the weak countries (if they cant address that it could implode the entire system) if money becomes scarce asset prices fall because assets must be sold to meet cash requirements
It all points to capital controls and if thats likely there will be an almighty run on the Euro to try and beat the implementation date.
