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Guest Post: Austrian Banks Carry €2.6 Trillion in Derivatives - Risk Unknown To Central Bank
Submitted by Toni Straka of The Prudent Investor
Austrian Banks Carry €2.6 Trillion in Derivatives - Risk Unknown To Central Bank
Austrian banks may be sitting on a €2.6 Trillion off balance sheet derivatives time bomb and the central bank does not know how much risk is involved in these trades.
Oesterreichische Nationalbank (OeNB) governor Ewald Nowotny said in a live chat of Austrian daily "Der Standard", he could not provide a material ad hoc figure for the actual net risk of these trades.
According to a (German language only) press release from last Thursday off balance sheet derivatives volume grew a stunning 13% to a record volume of €2.586 Trillion at the end of H2 2010 in Austria. This is roughly 2.5 times as much as the nationwide balance sum of all banks which stood barely unchanged at €1.037 Trillion in the same period.
It also has to be noted that this growth comes at a time of global de-leveraging and may indicate that Austrian banks try to make up for loan losses in Central Eastern Europe with bets on interest rates and currencies.
80% of derivatives are hedges/bets on interest rates and 20% are currency and gold derivatives.
As a side note: It is interesting to see that the OeNB considers gold a currency, after German authorities had said otherwise earlier in a rather idiotic move.
Risk May Lie Somewhere Between €125 And €250 Billion
According to industry insiders the actual risk after netting out short and long contracts may lie somewhere between 5% and 10% or €125 billion to €250 billion. In comparison Austria's GDP came in at €274 billion in 2009.
Nowotny said he hoped that the EU would realize a central clearing institution for derivatives as soon as possible.
This may take a few years, though. Although the EU has been talking about stricter derivative regulation, not a single step of action has been taken since the onset of the crisis more than 3 years ago.
This may originate in the common fear - one of the last things uniting Europe these days - that all European banks would suffer heavily if they were to bring OTC derivatives on their balance sheets. This is a safe speculation.
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TIK TOK TIK TOK
Time is almost up.
ppffff.... 2.6 trillion... don't we all...
PEANUTS I TELL YOU!!! PEANUTS!!!!
right. Alex, what is either they're short and won't be able to pay, or they're long and won't be able to collect?
For some reason I am hung up on the relative physical size of Austria to the size of its' financial exposure. I think the little voice in the back of my head is speaking.
Correct me if I am wrong, didn't the last big global bank run start in Austria ? Started with a K and ended with a stalt.
No correction necessary. And wasn't Arch Duke Ferdinand from Austria or somewhere like that, too?
I wonder, really wonder if the Central Bunk even knew that the stuff existed let alone the magnitude of the exposure before the articles.
How does one say "Tranny Porn" in German?
Transvestit Porno
......close. Credit Anstalt. Founded by the Rothschilds in 1855. Failure in 1931.
Accountability and control.
That is so 20th century.
Another week,another problem,another bailout of public money wherever it comes from.What do we have to do to get someone in jail for all this,this amounts to legalised loansharking and then paying out for the crime.The crime is being paid for with unborn generations futures.
How the #uck can a country like this allow its banks to create L2,000,000,000,000.00 in fictitious money instruments and not think that this is not going to end bad???
I'm nothing but a simple sock puppet, please enlighten me.
It will. You are now enlightened.
Austrians are pikers. I think the total dark market for derivatives is $650 Trillion. World, or just the US? Sleep well, they're all built on sturdy stuff like real estate prices and bonds.
It doesn't matter that it's $650,000,000,000,000.00. It's a black hole and we are caught in it's gravitational pull. Look at those zeros...
Zeros are just place-holders for nothing, so the total is only 650. I can live with that.
And now for my next stupid remark...
When the US starts adding 000s to the New US dollars it won't seem so bad after all.
Another question from the sock puppet.
What comes after trillions? Is it zillions? Seriously.
Apart from calling it "we're #ucked", what do we call $1,000,000,000,000,000.00?
Quadrillion
Think of it this way: Million, Billion (Bi = 2), Trillion (Tri =3), Quadrillion (Quad = 4), and then? Quintillion! Easy.
http://www.jimloy.com/math/billion.htm
Thanks.
I just looked at all of those zeros again and #uck... I just soiled my sock.
I'm off to the washing machine to get cleaned.
Thanks for such a great post and the review, I am totally impressed! Keep stuff like this coming!...
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