This page has been archived and commenting is disabled.

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.

 


- 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 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

King dollar, because the banks say so.

Tue, 08/21/2012 - 13:08 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

"Giving up"?  As in their virginity?

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

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

http://www.youtube.com/watch?v=n0VOM7e5Hug

Tue, 08/21/2012 - 11:56 | Link to Comment centerline
centerline's picture

Circular cash flow.

Tue, 08/21/2012 - 12:07 | Link to Comment 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 | Link to Comment centerline
centerline's picture

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

 

Tue, 08/21/2012 - 12:00 | Link to Comment 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 | Link to Comment 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 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

The Bank of DoChenRollingBearing is buying more gold today.

Tue, 08/21/2012 - 12:04 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment TheCanadianAustrian
TheCanadianAustrian's picture

Neither. It's promises of future fiat paper.

Tue, 08/21/2012 - 12:39 | Link to Comment 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 | Link to Comment “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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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!