Posted on 03/04/2009 11:12:47 PM PST by Chet 99
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.
(Excerpt) Read more at telegraph.co.uk ...
They just make more, hope, change, POP!
Betting against the USA is not a wise move.
The dollar is going up due to deflation... the money supply is contracting even though the feds are running the printing presses 24/7.
And Gordon Brown can’t even get a joint press conference with Obama, who I imagine was in latest conversation on how to deal with PE #1 Rush Limbaugh.
“Betting against the USA is not a wise move”
That was before we had our Communist in Chief. Give zero time, he will drive us down the rat hole of hell before he’s done.
Why not?
I believe that the Euro Banks have two major problems not present with our bank problems.
a) Many of these banks are/were allowed to leverage up to 50 to 1
b) Many of these banks developed into entities much larger than what was needed for serving the banking needs of their country (they served clients in the middle east/US/Asia. So now that they are headed for default, they are simply too big for some of their countries of origin to be able to bail them out.
Hmmmmmmm....... does G Soros, the known currency manipulator, have anything to do with this?
Second guess a devil. Its all screwed.
It's amazing. We are bailing out currency speculators. And putting ourselves into multi-generational debt to do so. As I recall a rather famous carpenter from Israel had a more direct method of dealing with money-changers, as they were called in his day. Perhaps we should follow his example.
Just ring Obama, he’s bailing out every failure!
What happens to the dollar next year, I wonder?
Maybe, but he’s not a trillionaire AFAIK.
I read articles on banking and finance almost every day.
I have no idea what Ambrose is talking about here.
If I understand, European banks have done three things.
First, they borrowed money in Euros or Sterling or Swiss Francs.
Second, they loaned those currencies away, apparently to people who converted them to dollars.
Or, third, the Euro banks themselves purchased dollar based securities.
As long as the loans are being repaid, why would the Euro banks need more dollars?
Or, as long as their dollar based securities have retained their original value, why do they need more dollars?
And, how does this create a “short” position in dollars?
Someone help me out, here.
I am completely baffled.
Looks to me like they borrowed in Sterling and Euros to finance loans in US dollars.
This is known as a carry trade, and large FX moves like we have seen vs. the dollar, lead to margin calls.
I’m not certain of the details, but it looks as though Euro banks were getting financing in sterling and euro and have either new or existing liabilities in dollars. So the strengthening of the dollar is forcing them to post more euros or sterling than previously expected.
I always thought his problem with the money changers was the fact they were doing it in the temple, not that he had a problem with their profession. Render onto Caesar and all that....
I might add that situations like this sometimes create something called a negative feedback loop. Whereby the situation compounds itself.
So the euro banks, with access to euros and sterling have no choice but to borrow more and convert to dollars putting further pressure on the direction of the trade. This will continue to cause the dollar to rally vs. these currencies and make the situation worse.
The USD was also strong during the Great Depression which of course was also deflationary...same as what we have today
Funny how Europe got in this hole without sub prime mortgages and with little use of derivatives and mortgage securitization that I know of
The easy conclusion is we had a world wide credit explosion (easy money) that got expressed differently around the globe. In China it was manifested by building far too many factories to make “stuff” for America and Europe then extending easy money to Americans to buy their “stuffs”
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