Update (Aug 18, 2011): Panic Hits World Financial Markets. Again.
5:00 PM Update:
“Must read” articles on Fed getting Concerned about European bank liquidity problems.
FT Alphaville: Should the New York Fed be worried about European banks?
For us, though, the most interesting part of the WSJ article is its end, which includes some raw data on European banks’ US assets (H/T Joseph Cotterill):
On June 30, 2010, for example, Société Générale had $55 million in cash reserves in its main New York branch. A year later, that amount had soared to $24.6 billion. At Deutsche Bank, cash reserves at its U.S. arm rose to $66.8 billion from $178 million.
In recent weeks, though, the cash piles at foreign banks’ U.S. arms have diminished. While individual banks haven’t reported data after June 30, foreign banks’ overall U.S. cash reserves fell to $758 billion as of Aug. 3, the latest data available. That is down 16% from three weeks earlier, though it’s still up sharply from the beginning of the year.
There are two stories here, one real (the massive increase in cash assets from 2010 to 2011), one possible (whether regulators are right to be worried about declining dollar cash piles on foreign bank balance sheets). Both are based on Fed H8 data, which show the assets and liabilities of US-based banks.
4:30 (US Markets Closed) Update:
Another big down day. I am almost glued to FT and ZH sites to find out what is happening. [CNBS is waste of time]. Zero Hedge deciphers some data and predicts what COULD happen tomorrow, Aug 19th (ES limit down at tomorrow’s open):
If yesterday’s news broken by ZH that one bank was in dire need of US dollars and ended up borrowing $500 million from the ECB was enough to send the market down almost 5% today, then the follow up news that the FRBNY just reactivated FX swap lines with Europe will likely send ES limit down at tomorrow’s open. The FRBNY has just announced that in the week ended August 17, it lent out $200 million to not the ECB, not the BOE, but the “most stable” of all banks: the SNB. This is the first use of the Fed’s Swap Lines since March, and the most transacted under this “last ditch global bailout swap line”
If you don’t understand what it really means, watch this video:
[Here is my best guess in plain English. In the most recent case, in its frantic attempts to lower the demand for Swiss Francs, SNB sold dollars and got into trouble. The Fed came to the rescue of SNB – a bank that is considered the most stable in the world. Now, imagine this: If the Fed has to bail out the MOST STABLE bank in the world, at a time most major European banks are teetering on the edge, imagine the scale of the problem!]
You might ask, $200 million doesn’t sound like much. Why bother even mentioning it. Here is Tyler’s explanation of the problem.
Because unlike in 2008, when the ECB was completely unprepared to deal with any of this, now the ECB is supposed to be handle such liquidity issues on its own. It doesn’t matter if $1 was transacted or $1 quadrillion: its mere usage means there is something very much broken in European liquidity conduits.
|10 Yr Bond(%)||2.0830%||-0.0820|
12:00 Noon Update: European Close
|FTSE Eurofirst 300||-10.99 / -1.18%|
|FTSE Eurofirst 300
10:00 AM A quick update on news and why it is happening.
- A Wall Street Journal piece explains today’s carnage. Fed Eyes European Banks.
- There is something onerous about Merkel and Sarkozy meeting yesterday. There is SPECULATION that Germany and France will not carry the baggage from Europe;s weaker economies any lonoger
- Yesterday one of (US) Fed governors, DIck Fisher issued a statement. “The Fed Should Not Protect US Stock Traders From Loss.” I don’t know about you, but I see this as a tacit admission that so far the Fed has been in the business of protecting US stock traders from loss. And that there are not going to do this any more.
- This morning: All trading on Russian stock exchange suspended.
- (check this post for more updates during the day)
Snapshot at 10:17 AM, Aug 18 – 2011
|10 Yr Bond(%)||2.0210%||-0.1440|