European banks are not locked out of the dollar commercial paper market...

Discussion in 'Wall St. News' started by ASusilovic, Jun 28, 2010.

  1. Whatever happened to the dollar funding crisis?

    If you’ll remember — central banks restarted dollar swap lines in May, after fears of banks’ exposure to bad sovereign debt dried up liquidity in the market. There wasn’t exactly a stampede to use the facilities when they opened, though.

    Two months on, we’ve been left with funding pressures for some banks, but not an overall crisis, say Barclays Capital’s analyst Laurent Fransolet and team.

    As they note (emphasis and link ours):

    …we estimate that non-US banks borrow about $1.5trn in the USD wholesale funding markets to fund about $1.2trn (according to BIS estimates) in USD assets. Of the $1.5trn, we calculate that about $925bn is in wholesale deposits, $370bn in commercial paper, and $170bn in a net short repo position.

    If there were truly a funding crisis, we would expect foreign banks to bid aggressively for wholesale deposits in the US, and to repatriate existing dollars back to their head offices. Neither has happened in size so far, unlike in the financial crisis of H2 08. Similarly, US branches of European banks still keep hundreds of billions of dollars in excess reserves at the Fed. Why would firms lend to the US central bank at 25bp if they were facing issues financing themselves even at much higher levels? Finally, Euribor has lagged the rise in Libor over the past couple of months (unlike in H2 08), and Libor itself has stabilized for several days.

    Indeed Libor has. It hit a one-month low on Monday, although many expect much higher rates by the autumn. The EURUSD basis swap still suggests a continued preference for dollars, though:


    Which indicates to BarCap that some small to middling European banks are indeed still in trouble, behind their bigger, Libor-fixing peers.

    Which is also suggested by European access to the US commercial paper market, according to BarCap’s Joseph Abate. This was another mini-crisis to watch in spring, after steep falls in buying of foreign banks’ paper in response to debt fears, plus some regulatory changes in money funds’ holdings.

    As Abate notes, banks have discovered a workaround:

    Continental European banks are not locked out of the dollar commercial paper market – although they might struggle to access it… To cope with the more difficult environment, these banks have begun offering 7-day putable securities with final maturities of 6m or 1y. Issuance of putable paper has totalled more than $15bn over the past two weeks…

    Assuming the put is not exercised the Continental banks now have access to term money which previously was unobtainable. Likewise the paper meets the 7-day liquidity requirements imposed on money funds by the SEC and it limits counterparty credit risk to just a week for nervous investors.

    That would have to be quite some nervousness. Not that all puts are apparently so short, though.

    A large Spanish bank, Abate says, has managed to issue paper with a one-month put.

    Lucky them. We’d love to know whom....
  2. can you provide a translation? I don't understand half of this
  3. Try this :

    Basically it´s a good sign in the actual "sh.t your pants" environment if a Spanish bank is able to issue putable securities in order to secure its medium term liquidity in the market - that is without the necessity to use the central bank ( in this case ECB ) as a last resort...
  4. There was never any dollar funding crisis... It was a completely bogus story to begin with.
  5. Actually, after they relaxed accounting and abolished mark-to-market the banks are hidding the bad dollar assets in their safes.

    IMO the dollar funding crisis was an unwinding of the carry trades in 2008. The US should have let those banks go down but that would have skyrocketed the USD to levels never seen before. The US elected to give away money to these thugs in order to keep the dollar exchange rate in check. The funny thing is that these european thugs started doing it all over again in 2009. Borrowing dollars that is, exchanging tit for a higher yielding currency and making the difference while the dollar was falling. At some point the US realized this could bring up another crisis and in a G-20 meating they all decided to let the USD slowly rise to sqeeze these speculators out of the market.

    Since then, it is peculiar that the European Bank balance sheets have been deteriorating. Most of their profits in pervious years were from dollar carry trades. And most of the so called "euro strength" was an artificial bogus artifact of those trades.
  6. Er, no... Or, rather, I should say that I disagree with this overly trivial analysis.
  7. Hum. Sorry, can´t confirm your analysis.

    Actually I spoke yesterday with a COO of a large European bank and he complained about his banks lending business - both on the retail and institutional side. They have an overhang on the active side of their balance sheet of 40 %. To put things into perpsective : normally this figure is around 10 %.

    This means : it is very difficult for banks selling loans. There is no interest either from retail nor from institutional side despite central banks zero interest policy. Large multinational companies are sitting on hoards of cash on an unprecedented level. They do not need loans.

    So what do they do to earn some interest ? They are heavy in government bonds - that is GERMAN government bonds and Swiss government bonds. They are marginally in peripherals.

    Basically EVERY large European bank is fighting the same problem on the active side .
  8. Do you always call things you do not understand trivial?
  9. Could it be that you are totally unimformed about the subject?

    Do not let your ego get in the way. Are you here because you want an ego boost or to learn?
  10. No, I reserve this label for things I understand very very well... Means I can see through the bullsh1t spewed occasionally by clueless people with relative ease.
    #10     Jun 30, 2010