If you have a summer internship at Goldman Sachs, the bank wants you to go home, if not at the end of the day, then at least by the end of the evening. New work rules for interns are meant to strongly discourage work between midnight and 7 a.m., limiting interns to a maximum workday of 17 hours. Even that is too much work, and the new guidelines directly suggest that interns should get enough sleep and have activities besides work. The new guidelines come after the death of a summer intern at Bank of America last summer, the apparent result of overwork and sleep deprivation.
RBS has apologized for an server crash that resulted in dropping 600,000 incoming payments on Wednesday. Systems were working normally again by the time the bank opened on Thursday, but the missing transactions have not yet been restored. In the interim, the bank is improperly holding funds intended for its customers. The best estimate is that customers will see the money in their accounts sometime Sunday. Similar errors will occur in the future, the bank warns. RBS has been spending £1 billion per year to update its systems, but continues to be plagued with operational problems.
If you have read this far, you are surely looking for reassurance on Greece, or perhaps for speculation on the form of a deal that might be worked out between Greece and euro zone authorities. For a deal to be possible, the European Union must accept that further economic reforms from Greece will not happen instantly. I am strongly in favor of an increase in the retirement age in Greece, for example, but for it to happen responsibly, a four-year increase in the retirement age would have to be phased in over a period of at least six years starting no sooner than next year. If the EU continues to insist on immediate austerity measures that would put Greece into a new depression or throw a quarter of citizens into poverty, Greece could be better off working out its own plan by making late payments on the loans it already has.
No one knows at this point whether banks in Greece will be able to open next week, a question an ECB official was worrying about a little too openly at a meeting Thursday. Net outflows were estimated at €4 billion this week, not a huge sum in itself, but alarming when added to the large outflows of previous months. The size of the deposit flight makes some depositors worry about capital controls, and that in turn makes them want to be sure they have enough cash. Besides the net outflows from banks, Greek citizens are holding on to their cash by paying their taxes late. In a crisis, it is more important to have cash on hand than to be current on your tax bills. The strategy, however, adds to the financial pressure on the government. Greek banks hold government debt that they may not be able to count as current assets if the government stops paying its debts, so the solvency of the banking system is tied to the solvency of the government.
Outside of Greece, the bank that has a disproportionate exposure to the European credit market is Deutsche Bank. Analysts are trying to guess at the magnitude of the impact on Deutsche Bank and other banks of a potential Greek default at the end of June. It is a complicated question that can’t be answered just by looking at the financial statements.
I must emphasize again that putting the future of the euro at risk in this situation makes no sense at all. The €8 billion of incremental short-term financing at issue is tiny compared to the €40 billion stock market value of Deutsche Bank or the €6 billion per day that Europe would pay for currency conversion in the absence of the euro. Measuring it another way, Greece’s immediate financial hole is equivalent to three or four days of national GDP. Greece has offered all the reforms possible under the circumstances, but European authorities have rejected them, asking instead for the quick fix that isn’t possible within the constraints of Greece’s financial condition. I am hopeful that cooler heads prevail and some kind of resolution is written either this weekend or at the euro zone summit called for Monday.
There is a reason to think that might happen, as the European Union turns its attention today and tomorrow to the actions required to avert euro-wide disaster in the event of a Greek default. After the EU looks at the price tag for recapitalizing a few giant banks, last week’s quibbles over the precise timing of Greek budget reforms will surely seem petty.
