Posted on 03/04/2009 6:49:33 PM PST by bruinbirdman
European banks face a US dollar “funding gap” of almost $2 trillion as a result of aggressive expansion around the world and may have difficulties rolling over debts, according to a report by the Bank for International Settlements.
The BIS said European and British banks have relied on an “unstable” source of funding, borrowing in their local currencies to finance “long positions in US dollars”. Much of this has to be rolled over in short-term debt markets. The currency mismatch has become a potential risk for banks as the dollar continues to climb against the euro and Swiss franc, and especially sterling and Sweden’s krona.
“The build-up of large net US dollar positions exposed these banks to funding risk, or the risk that their funding positions could not be rolled over,” said the BIS.
The report, entitled “US dollar shortage in global banking”, helps explain why there has been such a frantic scramble for dollars each time the credit crisis takes a turn for the worse. Many investors have been wrong-footed by the powerful rally in the dollar against almost all currencies, except the yen.
British banks have borrowed some $800bn in sterling to make dollar investments and loans. By mid-2007 they had accumulated what amounted to a $300bn net “short position” on the US dollar. The latest BIS data up to the third quarter of 2008 shows that this exposure has been trimmed by “deleveraging” but it still largely hanging over the UK financial institutions.
Swiss banks had a funding gap of $300bn at the onset of the credit crunch, an extremely high figure relative to Swiss GDP. German banks were $300bn short, and Dutch banks were $150bn short. Belgian and French banks were neutral.
The BIS said the total “funding gap” in dollars was
(Excerpt) Read more at telegraph.co.uk ...
Gads, it is something new every day.
Obama stole it.
No kidding...
Probably not great for our markets but BAD BAD for gold. This is how metals hounds get broiled.
He stole it, and now he’s busy printing replacement dollars.
He is one dirdy burd... (using a heavy Indian accent)
Oh well just print some more play money!
I’m not sure this article makes any sense, or maybe the writer simply doesn’t understand what he’s talking about. How can you have a dollar “gap” if you’ve built up a large long position in dollars?
It’s all in China.
However, they can still charge the average Pierre Leblanc 100 euros whenever HE has insufficient funds...
Please explain how this is BAD BAD for gold....
The way I see it, this shortage is being driven by the rise of the dollar against the other currencies. On the surface, that would be bad for commodities like gold, but that is nothing new. In fact, other commodities are falling but gold is rather steady. Why?
On the other hand, investors in other countries are buying gold because of instability in their own currencies which is why gold is not falling with the rise of the dollar. Indeed, gold is not acting like a commodity at all in this environment. It is really acting like a currency in its own right.
A bigger question is whether gold could be returning to it’s historical role in society....
LLS
Jim Rogers Buys Land, Starts Farming (and discusses the future of gold)
The article says they shorted the dollar, and got caught short.
I think he is exactly correct. The thing is moribund, the banks just bet too early.
Part of their problem is the foreign exchange exposure. A much bigger problem is that their US investments have been in CDS and synthetic CDOs and the like -- whose performance fell a bit short of what they expected from AAA securities!
Gold will fall on its own, as people flood the market in order to raise cash to pay bills with their last source of wealth. This happened in the early 80s with gold and silver. There are ads everywhere on cable channels touting it.
The strenght of the dollar has taken many by suprize. I don’t see how it can continue much longer.
Did you catch what he said about the IMF trying to sell their gold?
Seems that way...
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