• Knave Dave
    05/23/2016 - 18:16
    This past Thursday marked the one-year anniversary of the US stock market’s death when stocks saw their last high. Market bulls have spent a year looking like the walking dead. They’ve...

Where European Banks Store Their Cash: Foreign Banks Domiciled In US See Cash Hoard Spike Back To Record Highs

Tyler Durden's picture


Anyone looking at the broad headline data from the weekly commercial bank asset (H.8) release could rush to the superficial conclusion that cash assets at US-based financial institutions is approaching all time highs, which, again superficially, it is, at $1.9 trillion, the highest in 2012, and just shy of the all time highs of $1.936 trillion from July 2011. Further superficial analysis would lead one to believe that there is a notable divergence between total US bank cash (the bulk of its procured via repoing of previously purchased securities) and the weekly excess reserve balance indicated by the Fed. All these would be useful, if completely, wrong observations. The only relevant and accurate observation in this week's H.8 data is that foreign banks domiciled in the US have taken their cash balance back to all time highs, which at $918 billion is in the ballpark of the highest it has ever been, and merely confirms what everyone has known: the only reason the US market has benefited in the last several months is due to flight to safety into what, for whatever reason, is perceived as the safety of the US capital markets. At some point, this record cash balance will once again flow out, even as US bank cash holdings remain as flat as they have been for the past 3 years.

Foreign (read European) commercial banks located in the US have seen their cash holdings soar by $315 billion since April, or roughly since the time Europe start imploding once again after the LTRO 2 myth fizzled. What does this mean? That the tumble in the EUR in the past 4 months was driven primarily by European banks selling their currency and hoarding USD in US-subs. What, however, is notable is that this cash was not used to purchase US securities, but stayed inert to provide a cash buffer, supposedly to keep European banks in compliance with various Basel and other capitalization requirements. It also means that the market which has been looking at this number as potential dry powder for future purchases of stocks and bonds, has been dead wrong, and all it will take is for a sustained rise in the EUR for the cash balance to revert back out of the US, and into the holding level companies of the European banks which currently save dollars in the US.

Finally, what all this means is that, as we suggested two weeks ago, simple promises of future intervention by central banks will be insufficient, as US banks, whose cash balances have not budget in years, are now cash starved and in order to push the market to a new, higher level, they will require actual investable cash, i.e., reserves deposited by the Fed. Because ironically, risk flight out of one market and into another, does nothing for the aggregate level of global equities. Absent freshly printed money, the global stock markets will lurch from Europe to the US to Asia back to Europe indefinitely, until everyone develops terminal vertigo and gives up at which point not even the algos will be able to trade with each other.

Your rating: None

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 08/21/2012 - 11:54 | 2724002 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

King dollar, because the banks say so.

Tue, 08/21/2012 - 13:08 | 2724297 Haager
Haager's picture

Today its King Euro, as Stolper said 02-08. I, instead, do believe in some sort of short-squeeze so a reverting will come.

Tue, 08/21/2012 - 11:55 | 2724003 Abraxas
Abraxas's picture

Herd mentality! You can run you cattle, but by running alone you'll lose it all. Stay put you stupid cows.

Tue, 08/21/2012 - 11:53 | 2724004 Lost Wages
Lost Wages's picture

Quants are currently working on the "giving up" algorithm. Should be ready by 2013.

Tue, 08/21/2012 - 11:55 | 2724014 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

"Giving up"?  As in their virginity?

Tue, 08/21/2012 - 12:05 | 2724037 Zero Debt
Zero Debt's picture

The Mexican Standoff Algorithm with a minimum of three co-located servers should do the trick.


Tue, 08/21/2012 - 11:56 | 2724017 centerline
centerline's picture

Circular cash flow.

Tue, 08/21/2012 - 12:07 | 2724019 hedgeless_horseman
hedgeless_horseman's picture



Bank runs are now impossible because the wagon with the load of (infinite) cash travels at the speed of light.  Bank branch running short of cash in Timbuktu?  No trouble.  A few key strokes and voila... 0111000001101111011101010110111001100100011100110010000001100100011011110110110001101100011000010111001001110011001000000111100101100101011011100010000001111001011101010110000101101110001000000111001101110111011010010111001101110011001000000110011001110010011000010110111001100011011100110010000001100101011101000110001100100000011000010110111001100100001000000111001101101111001000000110011001101111011100100111010001101000

Tue, 08/21/2012 - 12:17 | 2724067 centerline
centerline's picture

01100001 01101110 01100100 00100000 01101001 01110100 00100111 01110011 00100000 01100111 01101111 01101110 01100101 00100001


Tue, 08/21/2012 - 12:00 | 2724025 Hype Alert
Hype Alert's picture

At least this won't affect the stock market.  [/sarc] Onward and upward.

Tue, 08/21/2012 - 12:01 | 2724028 centerline
centerline's picture

The direct effects of this though have been to sustain what seems like a state of suspended animation here in the US.  In some sectors there has even been what looks on the surface like improvement.  Isn't going to last because the change is not organic.  The underlying fundamentals are actually worse than before.

Tue, 08/21/2012 - 12:04 | 2724039 DoChenRollingBearing
DoChenRollingBearing's picture

The Bank of DoChenRollingBearing is buying more gold today.

Tue, 08/21/2012 - 12:04 | 2724041 HD
HD's picture

How is this money parked? Money Market? Is that another reason the feds want to limit/control MM withdrawals?

Tue, 08/21/2012 - 12:12 | 2724079 TheCanadianAustrian
TheCanadianAustrian's picture

"Cash assets" means USG treasuries. Government regulators require banks to be almost completely exposed to the treasury market in order to protect their depositors from risk.

Tue, 08/21/2012 - 12:13 | 2724044 LawsofPhysics
LawsofPhysics's picture

Serious question, is that all fiat paper or are there other "assets" hidden in there (CDS paper)?  Anyone really believe the "new accounting" by these banks?

Tue, 08/21/2012 - 12:15 | 2724087 TheCanadianAustrian
TheCanadianAustrian's picture

Neither. It's promises of future fiat paper.

Tue, 08/21/2012 - 12:39 | 2724169 BigJim
BigJim's picture

Good question.

And I have another... new USD are only created by the Fed, or by US commercial banks via fractional reserve lending. So where is this 'cash' coming from? If it's repos, who're they repoing to -  The Fed? The ECB, using a Fed currency swap window? Are USD actually being created here, or just swapped in from some other source?

It would be interesting to see a more detailed graph showing overall money supply and where those dollars are - US banks, foreign banks, depositors with money markets, etc.

Tue, 08/21/2012 - 12:19 | 2724057 “Rebellion to t...
“Rebellion to tyranny is obedience to God.”-ThomasJefferson's picture

Suggestion to urban dictionary:

Corzine; (verb); Pejorative: Take what ever the fuck you want, from who ever the fuck you want without any repurcussions from any government body,(foreign/domestic), or person, ever. Go on and live your life as if nothing happened.  So what if some lives were destroyed in the process.

With this large hoard of cash temporarily stored in our US banks, perhaps someone should "Corzine" these assets and write down some bad loans/gambling debts off the balance sheets.  Surely Jamie Dimon, Bernanke, or Geithner has considered this.

Tue, 08/21/2012 - 12:19 | 2724091 Dr. Engali
Dr. Engali's picture

Corzine proved that the U. S. is the best place to hold bank cash. The institutions can vaporize it at will as long as they line the right pockets.

Tue, 08/21/2012 - 13:39 | 2724461 Lore
Lore's picture



"the only reason the US market has benefited in the last several months is due to flight to safety into what, for whatever reason, is perceived as the safety of the US capital markets."

Missiles and aircraft carrier battle groups constitute a reason, albeit a poor one.

"Absent freshly printed money, the global stock markets will lurch from Europe to the US to Asia back to Europe indefinitely, until everyone develops terminal vertigo and gives up at which point not even the algos will be able to trade with each other."

The article neglects to mention the musical chair of last resort...

Wed, 08/22/2012 - 01:04 | 2726349 EZYJET PILOT
EZYJET PILOT's picture

I thought the Fed was supplying free cash to the banks via direct repos?

Do NOT follow this link or you will be banned from the site!