Euro banks fail

The European Central Bank (ECB) just released the findings of their AQR stress test on Euro banks.  Of the 150 banks tested 25 failed the test and failed to the tune of $36b.  The tests’ purpose and hence the alarming nature of the number of failures is to avoid major bank collapses amid a sudden economic downturn… topical given the fragile nature of the Eurozone right now.  Why should this worry us Antipodeans you ask?  Well Australian banks now hold over $800b of foreign debt, making the most of the near zero interest rates overseas to lend to you and I at enticingly low rates largely deployed into an over inflated property market.  Keep in mind too that a lot of Australia’s $856b in foreign debt is held on the balance sheets of our major banks.  The interlinked nature of the global financial system means that should a major overseas bank fail there is likely to be a domino effect that this time (we just missed in the GFC) would likely hit Australia as well.  There are 2 takeaways here… 1.  Gold and Silver are wise ‘insurance’ in your portfolio and 2.  That insurance should be stored out of the same system, independently at somewhere like Reserve Vault.