>>>Royal Bank of Scotland
>>>
>>>down 25% this morning
>>
>>I read an article sometime over the last couple of days (I looked for a link but can't find it - I think it was in the National Post) that pointed out that the assets of even the largest failed banks in the US are a relatively small percentage of US GDP. It also pointed out that RBS's assets are considerably larger than the UK GDP.
>>
>>An even more severe example of this (although much smaller in absolute size) is the current crisis in Iceland: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/3153061/Financial-crisis-Iceland-PM-warns-its-every-country-for-itself.html
>
>All these articles constantly confuse assets and liabilities. It is ballooning liability size that bring banks down.

One of the problems is, at this time, the "actual" amount of these ballooning liabilities (and/or declining/"toxic" assets) is changing literally by the hour, for any given bank as market conditions vary. I doubt that even the main line operations staff at major banks can accurately predict what their liabilities will be tomorrow, if they have significant exposure to these instruments.

With extreme volatility and the absence of accurate information, markets will estimate and approximate as best they can. Within a single country, they will assume that banks are similarly managed and have similar proportions of doubtful assets, and *may* need similar levels of bailout. So, as a first approximation:

If Bank #1 has assets $A1 and required a bailout $B1, then for a suspect Bank #2 that has not yet failed:

$B2 = $A2 * ( $B1 / $A1 )

Yes, there's a huge number of variables at work here, and the formula is extremely simplistic, but in the absence of better information what's the average punter to do?

It is worth noting there seem to be large differences between countries in exposure to "toxic" instruments. At this time, we here in Canada appear much less affected than the US. I don't know about the UK specifically, but Iceland looks like it is/was highly leveraged and is effectively suffering a sort of "margin call".