After Iceland collapsed and went into Depression, there were a number of analyses in the press regarding countries with outsized financial sectors.  The worry was that the collapse of Iceland was not an isolated incident, but rather a harbinger of things to come for smaller countries with large financial sectors.  I wrote a post in November called “Iceland: a cautionary tale for small nations“ which pointed to a number of countries that I considered vulnerable including Austria, Denmark, Ireland, Sweden and Switzerland.   Even the United Kingdom has been a concern.

Those worries are still with us three months later.  And with good reason as many countries in Eastern Europe are in or headed for Depression, Latvia being the most obvious example.  

Here is the crux of the matter:  there are a number of banks, which are very large in relation to the size of their domestic economy.  In the past, that has meant that they are too big to fail.  Citigroup is a prime example of banks that fall into this category.

But, there are also a number of banks with an asset base that is disproportionately large mainly due to many overseas assets.  I have pointed to Royal Bank of Scotland as a prime example.  What this means is that the governments where these banks are domiciled cannot make credible guarantees regarding the institutions in question.

If we suffer a crisis of confidence and these banks come under attack, they become literally too big to rescue.

To give you a few numbers, I will give you some examples in no particular order.