Today's Unprecedented Swiss Bank Intervention Driven By Massive Capital Flight From Germany To Switzerland; Result Was Euro Surge

Tyler Durden's picture

Earlier today we disclosed what were not one but several massive central bank interventions in the Euro-Swiss Franc exchange rate. The intervention was large enough to push the rate up by 300 pips, a gargantuan amount in a world where applied leverage is often in the thousands. The amount of capital required to achieve this was likely unprecedented. Yet what bothered us was why would the SNB so glaringly intervene in the FX market not once but three or even more times. Thanks to the Telegraph we find out that the reason was a massive €9.5 billion capital flight from Germany into Swiss deposit accounts just this morning, according to BNP. Unfortunately for Germany this is only the beginning of capital reallocation from the country into neighboring Switzerland. And the technical bounce in the EUR today was in fact an even greater sign of weakness: in fact, as the IMF's Tim Kingdon pointed out, the money run in Club Med banks last week resulted in a massive €56 billion of interbank lending as the move from the periphery to the core accelerated. Now that the next stage of the run is from the core, Europe will very soon find itself with depleted depository capital very soon. Because if money is fleeing Germany, it is certain that France, Italy and the UK can not be far behind.

Below, is a chart we posted earlier of the record Swiss National Bank intervention.

And here are more details on today's unprecedented move from Evans-Pritchard:

The market is left asking what skeletons are lurking in the cupboard," said Marc Ostwald from Monument Securities. The short ban follows a report by RBC Capital Markets that circulated widely in the City accusing German banks of failing to come clean on 75pc of their €45bn exposure to Greek debt.

German lenders have the lowest risk-weighted capital ratios in the world after Japan. They were slow to rebuild safety cushions after the sub-prime crisis, and now face a second set of losses on Club Med holdings. Reporting rules have let Landesbanken delay write-downs, turning them into Europe's "zombie" banks.

Even so, nothing adds up in this BaFin episode. Germany acted alone, prompting a tart rebuke from French finance minister Christine Lagarde. "It seems to me that one should at least seek the advice of the other member states concerned by this measure," she said. Brussels was not notified. The deep rift between Berlin and Paris has been exposed again, leaving it painfully clear the European Montary Union still lacks the fiscal and governing machinery of a viable currency union.

Far from stabilising markets, BaFin's move set off a nasty sell-off in credit markets. Markit's iTraxx Crossover index – measuring risk in mid-level corporate bonds – jumped 57 basis points to 586. Markit said BaFin had caused liquidity to dry up in "febrile conditions". The Libor-OIS spread watched for signs of strain in interbank lending widened further.

If the purpose of BaFin's action was to drive wolfpack "speculators" off Greece's back, it failed. Yields on 10-year Greek bonds rose 37 basis points to 7.918pc. What it showed is that CDS contracts barely matter. The issue is whether "real money" investors such as the Chinese central bank are willing to buy Greek and Portuguese debt.

The short ban set off instant capital flight to Switzerland. BNP Paribas said €9.5bn flowed into Swiss franc deposits in a matter of hours on Wednesday morning.

The Swiss central bank intervened to hold down the franc. This caused the euro to shoot back up against the US dollar after an early plunge. The euro had already bounced off "make-or-break" technical support at $1.2135, the 50pc "retracement" of its entire rise since 2000, but any rally is likely to be short-lived.

The commentary by BNP currency chief Hans Redeker is priceless, if for no other reason than to indicate to what great degree the great ongoing experiment to prevent the disintegration of the EU is an improvisation at every single step. As such, it is only a matter of time, before a fatal mistake is executed and the whole thing falls apart, despite the best intentions of European bureaucrats.

"As a German citizen, I wish to apologise for the stupidity of my government," said Hans Redeker, currency chief at BNP Paribas. He said the CDS ban deprives reserve managers of a crucial hedging tool for non-securitised loans and will scare away global investors needed to soak up Club Med bonds.

"The European market is likely to become utterly dysfunctional. Just as the market showed signs of stabilisation with real money starting to buy euros, the Germans have destroyed this glimmer of hope," said Mr Redeker. "The BaFin ban is a desperate political move by a government battling for survival. Angela Merkel needs the support of the Left so she has given in to a witch-hunt against banks and speculators."

As for talk of disintegration, we know that Europe was hours away from implosion as recently as Friday.

Tim Congdon from International Monetary Research said deposit data from the ECB shows that there was a "major run" on Club Med banks in the second week of May. Some €56bn of interbank lending facilities were withdrawn, probably as citizens in the South switched funds to banks in the eurozone core. Bank reliance on the ECB lending window jumped by €103bn – or 22pc – in a week.

"It was extreme and very sudden, probably on Friday afternoon. The eurozone was undoubtedly in peril," he said.

The question raised by BaFin is whether underlying damage to the eurozone banking system runs even deeper than feared.

If one considers that Libor keeps crawling higher, and that the Libor reporting dispersion between the European and foreign banks in the BBA USD panel is almost back at record wides, we are fairly certain that the answer to the last question is a resounding yes.

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TheGoodDoctor's picture

Is interbank lending like what we did in college so we could get beer while our paychecks cleared over the weekend? Essentially writing each other checks and deposting them?

SWRichmond's picture

Is interbank lending like what we did in college so we could get beer while our paychecks cleared over the weekend?

Idk, is interbank lending like going to the plasma clinic?

Raymond K Hassel's picture

lol, added bonus - needing less buck for the same bang. 

moneymutt's picture

check kiting for beers...brilliant

TheGoodDoctor's picture

It seemed an apporpriate comparison.

wagefreedom's picture

It seems European central bankers did the same thing in college...

Cognitive Dissonance's picture

Where there's smoke, there's fire. And there's a lot of smoke. Can you say volatility times 10?

Thunder44's picture

What? Nothing strange there.------------Yeah right.

Mitchman's picture

A beautiful article.  The system is fatally flawed and the Germans took the first logical step towards asserting their authority as the only adults in the bunch and as the owners of the only solid balance sheet in the group. Good for them.  And good for them for giving Bernanke the finger.

Renfield's picture

I agree.

WTF are these idiots trying to hold onto? What do they think they can avoid? The global financial system has been falling apart for years. The collapse has been accelerating for the last couple of years, but there is no 'stabilising' it. All that 'stability' - bailouts, shadow banking system, increasingly complex financial instruments, too-big-to-fail - was just making things worse.

Merkel has a spine after all, as it turns out - altho she shouldn't have ever softened on the bailout pap. Should have said No and called Sarkozy's bluff, should have refused to consider it in the first place. The EUR would have taken its lumps earlier. Merkel has more backbone than any of our lapdog administration - she is the first to face reality.

Their fucking 'bailout' was transparently unworkable from the start. Greece, Europe, and the rest of the western world is behaving like a desperate debtor trying to buy any time at any price. I'm not surprised at the blaming and weeping and carrying on by the cockroaches who are trying to kick the can down the road one last time, who are so close now to being made to hold the bag of their own debt. How dare Merkel refuse to pour her citizens' labour out like water so the banksters can party for another year.

I pity the peasants of Europe, though. Stupid or entitled as they may have been, they don't deserve the blaming and the pillaging they are getting from their guilty, complicit leaders.

There is a debtor's lineup happening. Europe, the 'resources' currencies, Japan, and at the end the US.

PS: And I can't tell from the various articles posted, whether the ZH panel is in favour of more bailout, and bigger shadow banking system, or not! Up until this week, I would have thought they'd be applauding - it's weird to read some posts that sound like they're coming straight from the Soc Gen.

Fraud-Esq's picture

as to you last point, I was surprised too.

TheGoodDoctor's picture

I may have missed this, what are you speaking of?

Bolweevil's picture

In my view the criticism from ZH is not necessarily the ban on naked shorts, but the "late to the party" nature of Merkel's poorly timed, back-firing, stab at gaining control of a too far gone rotten corpse of an EU (EMU?).

Fraud-Esq's picture

oh, I think I meant the general opinion of the contributors = against bank speculation, etc... no big deal. just seemed the opinion changed a bit. i guess some days you want to pound sovereigns and some days banks for the many follies of all. Just when it comes down to the bone, as much as I've had it with sovereigns, I'm personally with THEM on most every battle/regulation against banks. Seemed this contribution was with PNB's book, incidental or not.   

sushi's picture

I like your sentiment. Nothing like a little sturm und drang.

"she is the first to face reality."
They are in this mess because nobody faced reality. Loaning funds to persons/nations who lack the means to repay the debt is hardly a prudent course of action.

"Their fucking 'bailout' was transparently unworkable from the start."
Forget the Greeks. They are toast. The "bailout" was to protect French arms sales to Greece and prop up the overleveraged and undercapitalized German banks.

"How dare Merkel refuse to pour her citizens' labour out like water so the banksters can party for another year."
This is great writing. Truly great. Replace Merkel with Obama and her with him and you are really on to something.

"it's weird to read some posts that sound like they're coming straight from the Soc Gen."
Truly. Disclosure: long guillotines and tumbrils.

TheGoodDoctor's picture

I figure this graph is the culprit. Correct me if I am wrong.



Hephasteus's picture

Weird how everyone ends up owing each other more than everyone could possibly pay back. It's like there's something FUNDAMENTALLY and MATHEMATICALLY wrong here.

THE DORK OF CORK's picture

Its derivatives baby - in theory they should be net neutral but someone or something is skimming here. 

Hatshepsut7's picture

Totally agree with your sentiments (much voiced by comments posted online for ex. on discussing bailouts), the political establishment in Germany is out of touch with their voters to a large degree. Mrs. Merkel has some serious political damage to undo, let's hope she maintains her back bone.

s to ZH's bipolar nature on this issue....yeah, right, have been getting the same sense. Has gotten my little red lights flashing pretty hard last few days....

Assetman's picture

Perhaps the "bipolar" nature you speak of depends on who owns gold and who doesn't.  If you were betting on hyperinflation in the near term, Merkel just ruined your party it appears.

Food for thought...

Alienated Serf's picture

wrt all the bipolar talk, since when is it wrong for ZH to post opposing viewpoints?

defender's picture

You have to admit that we have pretty well crucified anyone that says anything outside of the groupthink for some time now.  Examples include Harry Wanker, Master Bates, Mako, and even Leo.  The soup du'jour is to junk posts without even reading them.  Contrary views are indeed accepted on ZH, even rewarded

by beating the submitter with a rubber hose.

akak's picture

I have to disagree.

In fact, just in the last couple of days here I have had a number of polite and constructive exchanges with several posters who admitted to being agnostic if not skeptical about the value of holding gold.  I neither jumped down their throats, nor did anyone else.  And you know why?  Because, unlike MasterBates (aka JohnnyBravo) or JayBayBaker, they did not (1) immediately enter the dialogue with an aggressive and hostile attitude and manner, (2) refuse to address or rebutt the issues raised by myself or others, and (3) did not swarm the thread with numerous hostile and gratuitously antagonistic posts.

Face it: there ARE trolls who do not deserve to be tolerated in online forums, and those who you mentioned (I will exclude Leo) were demonstrably in that camp.

defender's picture

I saw the exchanges that you are talking about and thought that they were the most informative and useful posts for that week.  Unfortunately I have to disagree with your final statement.  There are trolls, but they should be refuted, not crucified.  And when refutation doesn't work, they should be ignored. 

I would hate for this site to become like slashdot, a slave to its group think.  There are too many great minds here to lose them all to dogma.

WaterWings's picture

So far dogma has been the only way for the little guy to hold onto his wealth in these markets.

If you want dogma go to the MSM.

Alienated Serf's picture

akak, you are never a abusive unless it is to a troll like mr. wanger, which is fine, b/c he is a troll who just tries to rile people up and adds nothing constructive.  

i was just talking about the potential for groupthink to become entrenched.  i think its good we have leo or whomever else who have something constructive to add, even if it is at odds with what most of us think.  

if commenter's are gonna be like "oh i can't believe that guy doesn't agree with me and was allowed to post," isntead of crying about it, refute it!!

we can't afford to become an echo chamber, and i don't think we are, but we should be on gaurd.

buzzsaw99's picture

PS: And I can't tell from the various articles posted, whether the ZH panel is in favour of more bailout, and bigger shadow banking system, or not!


Agreud. Some of this stuff spins like it came straight from the belly of the beast.

Ropingdown's picture

I agree with both above, and with the surprisingly ambiguity shown in the comments.

Merkel quickly set up protection to stabilize German banks as the need to soon save them became apparent.  The French played a duplicitous game last week, in attempting once again to make Germany pay a disproportionate share only to prop up a soft currency and another round of la dolce vida on Germany's dime.  Now the legislature can stop the bailout, Germany can face its banking reorganization, and France can go to the IMF by itself.

darkpool2's picture

The French played a duplicitous game last week,

LOL, nothing new there......the French political caste is as sleazy as they come


merehuman's picture

Banks have in their rent seeking made war on us for centuries. We are finally catching on.

Bullish on truth.

Fraud-Esq's picture

This is the second blog today which threw a CURVEBALL on the SAME subject.

WTF. In order to mock sovereigns, we don't have to take up bank talking points.....there is ample sovereign-mocking material. I'd like to see if merkl can move the market and I dont mean price. I'm tired of watching numbers and charts, I want to see someone's foot in a chart.  

ConfederateH's picture

With this latest ban on naked shorts, Merkel is showing she has turned into a Euro-prude.

The real issue here is the stealth-coup performed by the Euro-elite when they broke Maastricht in order to formulate the 750B bailout.  It was a blatant power grab where Brussels and ECB wanted to take over the budgets of all Euro countries.  It would appear that Merkel has had a change of heart, and this is a gigantic victory for all opposed to the elite and their constant efforts to centralize control of the entire world.  One can hope that Germany has looked at Switzerland and decided that perhaps the Swiss were right to avoid being sucked into the EU morass.

This comment from the Telegraph article was my favorite:

My reply is that the EU Finance Ministers May 2010 Summit took the eurozone out of a trade and currency union and into a region of global governance; a European Economic Government was announced by EU Finance Leaders and State Leaders; they effected a bloodless coup de etat; sovereign nation states are history. National sovereignty is a principle of a bygone era. Perhaps a Framework Agreement, but definitely future Summit Announcements, will announce governing machinery and mechanisms for coordinated economic, banking, financial, monetary and seigniorage policy.


I refer to the EuroIntelligence article Euphoria Ends As Investors Suspect Another Shameless EU Confidence Trick, where France’s Finance Minister Christine Lagarde in Les May 11, 2010 article ”This Is Not Just An Emergency Plan — It Is A Historic Turning Point For Europe”, relates that this is a historical turning point for the euro zone.

She said that there is a political determination now to build something new, to reinvent the European model. The original construction faults of the eurozone will be dealt with, but this will not happen overnight. The work starts soon (21 May) under EU president Van Rompuy. Lagarde listed among others a convergence of economic models, a reinforced stability and growth pact and improved functioning of the eurogroup.

An excerpt with questions and answers is as follows:

Is Germany ready for the euro area that changes its nature by being more integrated politically and economically? … “Germany has agreed to change its traditional position with focus on bilateral loans as we have seen in Greece, to defend us, with the creation of a stabilization fund for Europe, whose dimension is collective, is the key element.”

Is this one ounce of federalism? … “It’s more than an ounce of European federalism, as the fund’s programs will purchase securities or offer loans.”

Clearly historical facts show that at the May 2010 European Summit, the EU Finance Ministers announced a region of global governance, specifically a federal economic, political, and monetary government, with a EU Treasury which has the authority to buy ailing sovereign debt and to exercise seigniorage. Mr. Trichet is tasked as the EU’s Treasurer and Chief Banker.

It is significant to note the optimism and sense of mission in the Les Echos interview, as Finance Minister Lagarde stated that “This is a historic turning point is extremely clear. This is not just a device concocted for emergency requirements. We wanted to build a system for the long term. Basically, there is a realization that we’re all in this together and we suffer the same blows. There is a determination to build a new building, to reinvent the European model. We must find the rules that we preserve such crises in the future. When you put 500 billion euros on the table, it still believes that will be satisfaction. This also means that there will be fiscal adjustment for everyone. “

She went on to highlight the pivotal role of incoming EU chairman: “The work cannot be done in one day. The work will begin soon after May 21, with the appointment of the new chairman of the European Union, Herman Van Rompuy.”

Clearly we have a new building and reinvention of the European model — the European Monetary Union that Mr. Evans-Pritchard referred to is history, it is part of a bygone era: the age of European Economic Governmenance has arisen, it will be presided over by its Sovereign, Herman Van Rompuy, and its Seignior, Jean-Claude Trichet.


Has Merkel gotten cold feet, and decided that Germany would rather remain sovereign?  I pray to god that she has....

Fraud-Esq's picture

Sounds to me like they're selling a grand skyscraper, a vision of Europe, to house and protect the wealthy shareholder of the very creditors who made bad loans in order to get rich. I agree with you. The only house that stands is the one where the reckless, loan-to-wealth creditors lose their money (with the shareholders) and the system resets. The reckless creditors cannot be allowed to gain financially and take more sovereign power, as well. That would be it. 

liberte egalite fraternite anyone?


AnAnonymous's picture

Truth, justice and freedom anyone?



It is sounder to declare the failure of the many, not one in particular.

sushi's picture

I'm sure everyone running capital wants to commit to the eurozone and run the risk of getting Merkeled. Survive that and then you get Sarkozied. And then just for laughs you will be Papandraoueowed. Ouzo on!

Amish Hacker's picture

I'm wondering what happens when all the capital that would have been invested in projects in Germany (and France, Spain, etc.) is sitting in Swiss banks instead. Makes it hard to see any kind of European"recovery" fueled by capital spending any time soon.

moneymutt's picture

kinda like US banks taking their Fed dollars and burying them to bolster reserves....dead, cold money doing nothing

Fraud-Esq's picture

except earning 3.5% and being used to leverage prop trades in addition?

tom a taxpayer's picture

And then you will be LilyVonShtupped!

Lili Von Shtupp: Would you like another schnitzengruben? 

Bart: No, thank you. Fifteen is my limit on schnitzengruben.

bonddude's picture


Lili: "What a nice guy" ;-)

merehuman's picture

 We have been obamad !

Miles Kendig's picture

And bushwacked.  two sides of the same coin

mojine's picture

If'n the right one don't getcha , the left one will!

mogul rider's picture

Yo gold bitches!

Our days are coming where people will treat us with respect instead of disdain. It'll be so cool to say at parties that you are a gold bitch and everybody will nod is awe.







mogul rider's picture

It'll also be cool to be the only guy with money to pay for the beer.

Renfield's picture

Yeah, YOU pay for the beer with your gold.

I'm going to pretend to be just another broke debtor, drinking at the table and getting bailed out by rich guy talkin' up his gold, when the bill comes.

What gold? I would have loved to get some & pay for thise here beer but I listened to the dollar bulls. Whups, I seem to be a little light this week...take an IOU? ;-)

Mark McGoldrick's picture

When the Swiss central bank intervenes to suppress the franc, how exactly do they do this? Do they simply go in the open market and buy Euros with their francs?  If this is true, how do market participants know that a central bank is doing this?  



Kataphraktos's picture

Yup, pretty much.

I used to work on an FX desk, and was the trader designated to deal with calls from the Fed. They call up a list of dealers, and will ask for a price on whatever currency pair they want to affect. In my case, it was always USD/JPY, when the USD was tanking in the mid-1990s.

The trader knows which way the intervention is going, so you misprice to make sure you can get rid of it without taking a loss, and of course every trader covers a little extra to ride the intervention wave up or down. To understand sizes, back then ,the quote was always for 100m USD. I suspect they were calling around 20 or so banks, so at least a couple of billion - and that was 15 years ago. We can safely assume current interventions are at least 3-4 times as big to have a similar impact these days.

Rainman's picture

.....+100 for the insight on inner workings.