According to a recent press report, the agreement between Franco-Belgian Bank and Dexia Bank has been broken up and has become partly nationalised. This is because the funding squeeze has crashed the bank as a sign of warning about the European struggling lenders.
The rescue of Dexia thereby is likely to pose a global credit risk of about $.700 billion which is twice more than the GDP of Greece. There has been conference between the French and Germany that the European banks need to be capitalised, but they should find the ways to make it happen.
Recently a meeting has been conducted in Brussels by the board of Dexia to discuss and approve the plan regarding the issue of Dexia’s rescue, but the discussions were not revealed to the press, but the board would call the bank’s Belgian retail unit and French financial operations under the control of the Government.
Dexia has been forced to ask for assistance from the Government for the second time in three years after a liquidity crisis that trembled the Bank and its shares had gone down by 42 per cent. Now the discussions and plans are on how much each government has to lend for the rescue of the bank, given that Belgium and France have already being struggling due to heavy deficits.
The European Government whose budgets have already been stretched is under pressure to recapitalise the bank which is an emerging need.