Europe's Backing of Troubled Banks Rivals U.S. Spending -- And Sometimes Tops It

Europe may have taken a recent rhetorical drubbing for not shouldering its weight in support of the global economy. But the Old World is pouring just as much money into its shaky financial institutions as the U.S. — and sometimes more.

Critics like Paul Krugman have accused Europe of shirking when it comes to economic-stimulus measures; some even complain that Europe is taking advantage of the U.S. stimulus package without spending its own funds. That may be true on the monetary and fiscal front, although U.K. PM Gordon Brown disagrees. But when it comes to directly supporting troubled financial institutions, it’s not that black and white, since  Europe has been as active as the U.S., if not more so.

Consider the following numbers, most of which I took from a second quarter global-outlook report by Barclays Capital Research (unfortunately not available online):

• Direct capital injections: The U.S. has so far spent close to $300 billion of the $700 billion Troubled Assets Relief Program. Goldman Sachs, for instance, got $10 billion in TARP funds, while Bank of America took in $45 billion. In Europe, by contrast, continental capital injections currently amount to €142 billion ($193 billion), while the U.K. has ponied up £37 billion ($54 billion) on Royal Bank of Scotland and Lloyds. The U.K. has also nationalized two mortgage lenders, Northern Rock and Bradford & Bingley, and the nationalization of B&B alone could cost as much as £150 billion.
• Guarantees on issuance of new debt: Government have guaranteed new bonds issued by financial institutions on both sides of the Atlantic. In the U.S., financial institutions have so far issued $220 billion of fresh debt guaranteed by the FDIC through the Temporary Liquidity Guarantee Program. In the Euro zone, banks and other institutions have issued €119 billion of guaranteed debt. In the U.K., the government can guarantee up to £250 billion of new bank debt through the Credit Guarantee Scheme program.
• Protection of bank assets: The U.S. recently announced the Public-Private Investment Program, in which the Fed will use up to $100 billion in TARP funds to help private investors buy up to $1 trillion worth of toxic loans and securities from banks. European countries are guaranteeing an even larger chunk of bank loans: up to €2 trillion in the Euro zone, including €240 billion in Belgium, €320 billion in France, €420 billion in Ireland and up to €400 billion in Germany. In the U.K., the Asset Protection Scheme program is set to insures about £585 billion of assets, including most recently £250 billion for Lloyds.
• Deposit Insurance: Many governments have expanded the amounts of bank deposits they insure. In the U.S., the amount insured by the FDIC went up to $250,000 from $100,000 in October. The U.K. has been a bit less generous on that end increasing the amount to £50,000 from £35,000, and France hasn’t increase its €70,000 limit at all. But other European nations have been quite proactive. Both Germany and Ireland for instance said they now provide an unlimited guarantee of deposits at their banks.