Category Archives: Euro

NY Fed May Demand Reports From Europe Banks – Bloomberg


NY Fed May Demand Reports From Europe Banks

By Meera Louis – Oct 2, 2011

The Federal Reserve Bank of New York may ask foreign lenders for more detailed daily reports on liquidity as the U.S. steps up monitoring of risks from Europe‘s sovereign debt crisis, according to two people with knowledge of the matter.

Regulators held informal talks with some of the largest European lenders about producing a “fourth-generation daily liquidity” or 4G report, according to the people, who asked for anonymity because communications with central bankers are confidential. The reports may cover potential liabilities such as foreign-exchange swaps and credit-default swaps, said one person. The U.S. has already increased the number of examiners embedded in these banks, the person said.

Concern is growing that European lenders may falter as Greece teeters on the brink of default. U.S. Treasury Secretary Timothy F. Geithnerhas warned that failure to bolster European backstops would threaten “cascading default, bank runs and catastrophic risk” for the global economy.

“The Fed is trying to understand what the pressure points are in terms of liquidity and potential risks that are imposed by foreign banks to domestic institutions in our financial system,” said Kevin Petrasic, an attorney at the Washington- based law firm of Paul, Hastings, Janofsky & Walker LLC. “There is a little bit more sense of urgency as a result of what’s going on in Europe.”
Liquidity Risk

U.S.-based money funds, which buy short-term commercial paper, have been shunning securities issued by some banks based on the continent, and European Central Bank Governing Council member Yves Mersch said Sept. 28 that liquidity shortages pose the main risks to the region’s banking system.

Jack Gutt, a spokesman for the Federal Reserve Bank of New York, declined to comment. The largest European bank holding companies by assets in the U.S. include units of Deutsche Bank AG (DBK), HSBC Holdings Plc. (HSBA) and Banco Bilbao Vizcaya Argentaria S.A., according to Fed data. Duncan King, a spokesman for Frankfurt- based Deutsche Bank, Thaddeus Herrick, a spokesman for Spain- based BBVA and London-based HSBC’s Rob Sherman said they couldn’t comment.

U.S. banks are starting to provide a 4G report and they are being phased in this month, said Karen Shaw Petrou, managing partner of Washington-based Federal Financial Analytics Inc. Some Europeans are asking U.S. counterparts for information on how to prepare the report even though there has been no formal request from the Fed so far, one of the people said.
Avoiding a Squeeze

“The report requires rapid and in some cases daily data on a banks’ assets, liabilities and potential claims to measure the degree to which the bank could be caught in the classic borrow- short, lend-long squeeze,” Petrou said. “The 4G is one of the tools to reveal liquidity risk.”

The forms aren’t public, according to Petrou, and the New York Fed declined to provide a copy.

Euro-zone banks and other institutions were more than $350 billion in debt to the Fed’s emergency-lending facilities at one point during the2008-2009 financial crisis, according to data compiled by Bloomberg News. The analysis was based on Fed documents released earlier this year after court orders upheld Freedom of Information Act requests by Bloomberg LP, the parent company of Bloomberg News, and News Corp.’s Fox News Network LLC. Fed lending to these entities totaled more than $100 billion on an average day.
Swap Contracts

Regulators lack access to data on foreign institutions operating in the U.S. that would allow them to “make informed judgments about the adequacy of such firms’ capital and liquidity buffers,” William C. Dudley, president of the Federal Reserve Bank of New York, said in a Sept. 23 Washington speech.

U.S. prime money-market funds cut their exposure to euro- zone bank deposits and commercial paper, or short-term IOUs, to $214 billion in August from $391 billion at the end of last year, according to JPMorgan Chase & Co. data. The funds are rationing their credit to European banks because of concerns that financial institutions will take large losses if a euro- zone nation defaults.

Credit-default swaps allow bondholders to buy protection against losses if an issuer doesn’t pay its debts. The contracts can entitle the holder to face value if the borrower defaults. Lawmakers and regulators have blamed misuse of swaps and lack of disclosure for helping to trigger the 2008 financial crisis.

A currency swap is a contract in which one party borrows one currency from another, and simultaneously lends another to the second party. Foreign-exchange swaps are used to raise foreign currencies for financial institutions and their customers, such as exporters and importers as well as investors.

Currencies and their related derivatives are among the most actively traded markets in the world, with average daily turnover reaching $4 trillion as of September 2010, Bank for International Settlements estimates.

To contact the reporter on this story: Meera Louis in Washington at mlouis1@bloomberg.net

To contact the editors responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net; Rick Green at rgreen18@bloomberg.net

http://www.bloomberg.com/news/2011-10-02/new-york-fed-may-demand-europe-s-banks-produce-more-details-on-liquidity.html

Commodity Red Flag…


Commodity Red Flag…

The MasterMetals Blog

Italian Treasury "Discovered" Larger Cash Pile Than Expected; Likely To Withdraw From More If Not All 2011 Bond Auctions | ZeroHedge


Italian Treasury “Discovered” Larger Cash Pile Than Expected; Likely To Withdraw From More If Not All 2011 Bond Auctions | ZeroHedge

you gotta love it when you find some cash in your pocket….
“And the news just gets uber-surreal. According to a Reuters report, the Italian Treasury has a ‘larger cash pile than generally perceived according to sources.’ As a reminder this is precisely the excuse that Italy used when it scrambled to cancel medium and long-term auctions for late August as was previously noted. Which can only mean one thing: in order to prevent more ongoing routs, Italy will likely now withdraw from all bond auctions for the ‘foreseeable future’ in order to not give the market a chance to do some real price discovery. Sure enough, the subsequent Reuters headline says that the ‘Italian Treasury’s cash pile is enough to last most of 2011.’ Translation: while Greece, Portugal and Ireland are unable to access capital markets, Italy, as we predicted, has just self-imposed a capital markets exile likely until the end of the year.”
Italian Treasury “Discovered” Larger Cash Pile Than Expected; Likely To Withdraw From More If Not All 2011 Bond Auctions | ZeroHedge:

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