Why are the banks in crisis again?

FT.com / Columnists / Tony Jackson - Why are the banks in crisis again?: "The ugly downward lurch of US and European banks in the past 10 days is unsettling, if not wholly unexpected. What is behind it? And where do we go from here?

One likely answer to the first question is that with year-end window dressing out of the way, the banks are starting to confront reality. Citigroup has switched abruptly from defending its conglomerate structure to breaking it up. Barclays has stopped talking about hiring investment bankers and is firing 2,100 instead.

And so forth. In essence, the banks are staring down the twin barrels of a shotgun. The old problems of rancid assets remain, and the new ones of recession are kicking in.

As a result, the system looks like it will stay glued up for a while. The recent fall in interbank rates might suggest otherwise but as Richard Portes of the London Business School points out, they are not the whole story.

In Europe, he puts the amount parked by the banks with the European Central Bank at well over €300bn. They are losing money on those deposits. But that is evidently preferable to risking the cash by putting it to work."