A SWIFT Denial - How In Europe, Even Admission Of A "Plan B" Is Equivalent To Failure

Tyler Durden's picture

While we have long known that the drachma, and recently the lira, have seen significant "when issued" interest by institutional clients desiring to hedge their currency collapse exposure, and thus early markets by various trading desks, little did we realize just how destabilizing this fact to the system would be, at least according to SWIFT. According to the WSJ, this organization, best known for making an abrupt appearance any time one wishes to do a wire transfer, then promptly disappearing until the next such instance, ended up promptly shutting down any Plan B optionality when "at least two global banks took steps to install back-up technology systems that could handle trades in old European currencies like drachmas, escudos and lire... quickly found, is not so easy in a financial world that is trying to both exhibit confidence in the ailing euro and—just in case—plan for its possible demise. Technology managers at the banks contacted Swift, the Belgium-based consortium that manages the network used in financial transactions, said people familiar with the matter. The banks wanted Swift's technology support and the currency codes that would be necessary to set up the backup systems." And got promptly rejected: "Swift declined to provide some information for such contingency planning, including whether old codes could be used in the system, said the people familiar with the matter." The reason is that in Europe, the mere admission that Plan B is a possibility, apparently set off a chain of events that makes Plan B an inevitability: "...officials there feared that releasing the information could fuel further doubts and instability in the euro zone."

And so Europe is left to fend on its own, with the mere mention of the possibility of failure being completely ignored, as the mere contemplation of failure is not only no longer an option, but apparently an outright admission of defeat. Needless to say, the fact that European banks have no way to hedge anything any more, CDS trading having been killed, thank you ISDA, and now supervisory bodies themselves telling banks to not even consider Plan B, is enough reason why the LTRO will be an abysmal failure.

Because one does not need to be a rocket scientist to realize that when everyone is telling you that even Plan B is improper, then it is all too clear there is absolutely no Plan Whatever.

As the WSJ captions it best:

It is a relatively minor setback for banks, as they look at everything from loan agreements to the safety of their branch staff in the event of one country's withdrawal from the euro currency.

 

But it illustrates the road blocks that politicians, banks and companies in Europe face as they attempt to simultaneously prepare for a euro-zone break up while assuaging market fears.

 

"As soon as you start contingency planning   . . . it can become a foregone conclusion," said Alastair Newton, senior political analyst at Nomura PLC.  "But if things go wrong and you don't have plans in place, you're in trouble."

Kinda like Jon Corzine, who bet it all on double zero, and found out the hard way that the lack of hedges coupled with the realization that one is either not Too Big To Fail, or, even worse, Too Big To Save, can lead to very hazardous consequences for one's health.

In the meantime, the doomed European continent can best be described by the following bird, which in our opinion should become the Eurozone's failed neo-globalist symbol.

Why?

European Central Bank President Mario Draghi this past week said that such speculation about the euro's demise is "morbid."

 

Nevertheless, governments, finance firms and corporations have been quietly stepping up plans in the past several weeks to prepare for a worst-case scenario.

 

The Financial Services Authority, the U.K.'s bank watchdog, has sent letters to the country's major banks asking for updates on their level of preparedness, and a similar dialogue has begun between banks and regulators in the U.S. in recent weeks, said the people familiar with the matter.

 

The U.K. Foreign Office has begun making contingency plans to evacuate U.K. residents from Spain and Portugal in the case of bank meltdowns in those countries, said a person familiar with the matter. In a sign of concern over stirring panic, a spokesman was tight-lipped about details apart to say that office is always preparing for all types of scenarios.

 

In another sign of escalating fears, some corporate firms with operations in Greece and elsewhere in Southern Europe have begun transferring their cash out of Greece on almost a daily basis—compared to the normal two-week interval—as a precaution against a sudden loss in value if currencies are revived, said a banker familiar with the companies' transactions.

 

Prepping their systems to handle codes for old European of currencies is one way banks are taking steps to buffer themselves against major business disruptions if any country suddenly leaves the euro zone.

As to the specific nature of the problem at hand, which very soon will come front and center:

One question banks have, and have not been able to clarify, is whether codes for now-defunct currencies, such as GRD for the Greek drachma, will be valid in the current Swift system.

 

A Swift spokesman said the company is ready to take whatever actions are required to maintain normal operations, but that "it is not appropriate this time for Swift to comment on issues specifically associated with the euro zone."

 

If a new currency emerges, it is handled by a maintenance agency affiliated with the International Standards Organization. A spokesman for that agency, SIX Interbank Clearing Ltd., said the agency has several projects looking at "dire scenarios" but the contingency plans for such scenarios have so far remained confidential.

Unfortunately by the time it "is appropriate to comment" it will be too late, as by then it will be merely the latest confirmation that everything the world's voodoo priests (f/k/a economists) have taken as gospel and sacred writings for so many decades, has been dead wrong. Only instead of quietly admitting their failure and exiting stage left in complete humiliation but with some hope for fixing the system, they would rather leave the proverbial flood in their wake, and a world completely destroyed out of blind adherence to a broken economic "theory."