Thursday, October 20, 2011

Britain's bank lending to France sky-rockets!

A report from the BIS, linked here, has the surprising news that British banl lending to French public bodies rose by 23% in the second calendar quarter, a quote:

European banks boosted lending to French borrowers 8 percent to $925 billion in the three months ended June 30, according to data released yesterday by the BIS, based in Basel, Switzerland. That was driven by a 23 percent increase in loans to the French public sector by British banks

Interestingly, on the Action Man blog, this afternoon, a detailed posting appeared describing how European banks have been shrinking their asset base to raise new funds, as apparently was the last resort of Dexia. A quote from that report, linked here, is as follows:

The reason is that the euro area banks have now had problems to fund their assets for quite some time, as wholesale and interbank funding markets have dried up. In order to receive funding, many of them have resorted to encumbering collateral. In some places like Spain, Ireland and Greece this has been done to such an extent that banks now have to avail themselves of the euro-system's 'emergency liquidity facilities', where banks borrow funds from their national central banks in exchange for – essentially nothing. Instead of handing over eligible collateral, they simply hand over an IOU they themselves create.

This is also what has tripped up Dexia, as its wrong way derivatives bets required it to encumber more and more collateral, until it no longer had anything left it could pledge. In these deals, lenders usually insist on over-collateralization or significant haircuts, with the end result that not all assets can be funded anymore at some point. This is especially true in cases such as Dexia, where a big interest rate swap trade went totally wrong and more and more collateral was required to keep it afloat.

As Action Man, itself goes on to state, the end game does now seem close for the Euro farce:

So much for the ECB's full-throated assurances – given only a few months ago – that there is 'over € 14 trillion in eligible collateral in the euro area's banking system' and that therefore there 'can not possibly be a liquidity problem in the banking system'. Dexia's case already proves otherwise and obviously by now just about everyone knows that what the ECB contended simply is no longer true.

After the Grand Opera and reception laid on for the retirement of the arch-trickster, Jean-Claude Trichet, last evening, in Frankfurt, which iteslf apparently turned to farce, can the TTITPB find a suitable disguise and escape back to St Malo before the fan finally performs its long pre-ordained task!

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Blogger James Higham said...

I'd love to see a row of gibbets with all these on it.

6:34 PM  

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