Alasdair Macleod: The ghost of failed banks returns

Section:

By Alasdair Macleod
GoldMoney, St. Helier, Jersey, Channel Islands
Friday, September 27, 2019

Last week's failure in the US repo market might have had something to do with Deutsche Bank's disposal of its prime brokerage to BNP, bringing an unwelcome spotlight to the troubled bank and other foreign banks with prime brokerages in America. There are also worrying similarities between Germany's Deutsche Bank today and Austria's Credit-Anstalt in 1931, only the scale is far larger and additionally includes derivatives with a gross value of $50 trillion.

... Dispatch continues below ...


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If the repo problem spreads, it could also raise questions over the synthetic exchange-traded fund industry, whose cash and deposits may face escalating counterparty risks in some of the large banks and their prime brokerages. Managers of synthetic ETFs should be urgently re-evaluating their contractual relationships.

Whoever the repo failure involved, it is likely to prove a watershed moment, causing U.S. bankers to more widely consider their exposure to counterparty risk and risky loans, particularly leveraged loans and their collateralised form in CLOs. The deterioration in global trade prospects, as well as the US economic outlook and the likelihood that reducing dollar interest rates to the zero bound will prove insufficient to reverse a decline, will take on a new relevance to their decisions. ...

... For the remainder of the commentary:

https://www.goldmoney.com/research/goldmoney-insights/the-ghost-of-faile...

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