One on One with Roger Kubarych, Chief Economist at UniCredit
Thursday, October 02, 2008
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SUSIE GHARIB: While the U.S. economy is at the center of the financial crisis, the global banking system is also in turmoil. Joining us now to talk about the global impact of the credit crunch, Roger Kubarych, chief economist at UniCredit, Italy's largest bank. Hi, Roger, how are you?
ROGER KUBARYCH, CHIEF U.S. ECONOMIST, UNICREDIT GROUP: Good to be with you, Susie.
GHARIB: All right. What -- how would you describe the health of the global banking system? I hear that a lot of European banks have plenty of toxic debt of their own on their books.
KUBARYCH: It's very mixed. There are quite a few European and even Asian banks that are involved with the toxic debt, but have strong capital elsewhere. And others are just sort of embroiled in it because the flow out of the banks has been indiscriminate. There has been kind of guilt by association even for those who are not guilty.
GHARIB: I understand that there is a lot of resistance among different countries and European banks putting together a coordinated plan to bail out European banks, something along the lines of what the United States is doing with this bailout package. But isn't it necessary to do that so that they can get the money flowing throughout the whole international banking system?
KUBARYCH: Well, the Europeans have the European Union. And the European Commission in Brussels likes to set common standards and common approaches to all these problems. But there are very big differences of view between, for example, France and Germany and Ireland, of all people, about how to proceed, and those are not going to be easy to reconcile quickly. They are going to go on a nation- by-nation basis. And they are not impressed by the way our bailout has proceeded.
GHARIB: Well, how important is the U.S. bailout for what's going on on the international scene?
KUBARYCH: It's very important, because, you know, the Europeans were affected by the beginnings of this crisis back in July of 2007, two German banks, the very lurid failure of Northern Rock in the U.K. But ever since the Bear Stearns fiasco in March, they've been complacent, and they've thought that they were not part of it. But in the last week we've had five major failures in different countries. And now they are running way behind where they should be in terms of coming to grips with it. And they need America to get our house in order first.
GHARIB: All right. So, who are the lenders of last resort here? The United States is having its problem. Europe is having -- banks are having their problems. I mean, there are -- there is only so much that Warren Buffett can do to lend a helping hand to American businesses. Who are the lenders of last resort?
KUBARYCH: Well, in terms of liquidity support, the European Central Bank, the Bank of England, the Swiss National Bank, and in Asia the Bank of Japan have all been very active in providing liquidity on much the same basis as the Fed has been doing. But in terms of bailing out individual firms, it's a lot different. For example, the Irish put on unlimited deposit insurance for all Irish banks in the wake of a near failure of a firm in Ireland. Other countries in Europe think that that is far too excessive, and that's why when ask who the lender of last resort is, it is an open question.
GHARIB: All right. We're going to leave it there. Roger, thank you so much for coming on our program. Hope to get you back again.
KUBARYCH: Thank you.
GHARIB: My guest tonight, Roger Kubarych, chief economist at UniCredit.
