A lot of people have been writing in about the liquidity crisis and the banks with exposure to Deutsche Bank. This is clearly the European Banking Crisis we have been warning about. Most European (and Swiss) banks are having to overpay 30-40bps over libor. Even A+ rated banks are having to pay this premium.
Keep in mind that the Lehman and Bear crisis took place in the REPO market. This is why the crisis is appearing in a market most never hear about or see in interest rates. Those in Europe who have a position in cash, it may be better to have shares or a private sector bond or US Treasury. Given the policy in Europe of no bailouts, leaving cash sitting in your account could expose you to risk in the months ahead.
In all honesty, if this explodes in Europe, no-one will be safe and it will be pot-luck who’s cash you will be holding when it hits the fan. The Fed will bailout the US banks, but it cannot get involved in bailing out the European banks. This is becoming a clash in public policy which all stems from the FAILURE to have consolidated the debts. That refusal to consolidate, the terms demanded by Germany, also precludes bailouts where the money would cross borders. They want to pretend this is one happy family, but they insist on separate accounts.
As one European banker put it in a private conversation, it is almost a calm collapse. As I have REPEATEDLY warned, we are facing scenarios that nobody has ever seen before. The interconnectivity runs so deep, this clash in public policies can result in a serious crisis emanating from Europe.
Despite all the negativity against Trump in the domestic press, they remain oblivious to the global trend. There are some urgent measures which need to be taken and fast. But the politics in Europe make it extremely difficult to do the right thing. If there is truly a will to address the critical issues at the core of this crisis, we have a team ready to provide guidance. As for our central banking clients outside of Europe, please monitor our services on Socrates.
Well, this is going to be a VERY VERY VERY Interesting WEC this year.