A run on European banks that would create systemic risks is still possible if a major financial institution gets into trouble, Brad Bourland, chief economist and head of proprietary investment at Jadwa Investment, warned in a CNBC interview.
Asked where a Lehman type of event would happen if it were to happen again, Bourland said: "A major European bank. A commercial bank. The German and the French are capable of taking care of their banks but last week S&P downgraded 26 Italian banks."
"So if there is a series of failures in one of the weaker countries of a banking sector — in Europe you don’t have the same deposit guarantee insurance universally like you do in the US, so you never had a run on a US bank, people lining up to get deposits out. But if you have several banks, or a significant bank fail and you will have a run," he added.
Speaking less than a week before the launch of the European Central Bank’s second long term refinancing operation (LTRO), he suggested the safety net for the banks was not enough.
Markets are anxiously anticipating the size of the ECB’s second LTRO, with estimates ranging from 500 billion euros ($665 million) to 1 trillion euros.
Despite this uncertainty, Bourland, who manages a $400 million proprietary portfolio, said he was still buying risk, “Just not in Europe. We like high growth, emerging markets. We like private equity and real estate.”
But for now, buying into the Greek market is one step too far, he said.
“I would love to buy Greek real estates,” Bourland said, “Or some Greek assets, but not at German prices. So wait until it breaks. Maybe Greece leaves the euro, maybe it has a dramatic internal devaluation, something has to happen before it gets interesting for external investors.”