MF Bankruptcy Causes Biggest Foreign Bank Liquidity Scramble To 'Fed Safety' Ever, Harbinger Of Major Eurobank Stress

Tyler Durden's picture

When Lehman filed for bankruptcy in that fateful week of September 2008, one thing caught everyone's attention: the epic surge in the Fed Reverse Repos originated by "foreign official and international accounts": essentially cash placed at the Fed by foreign institutions in exchange for collateral, primarily in the form of Treasurys, as well as other securities. This is nothing but an immediate cash parking in a 'safe place', which withdraws overall liquidity from the market, and as has been noted elsewhere, serves as an indirect gauge of banking system funding stress. In the week of September 24, this number soared from $46.6 to $93.7 billion, a $44 billion increase, or the single biggest jump in the history of the series. Well, as the chart below demonstrates, what happened with MF Global caught foreign banks, which as we have noted over the past several weeks have been dumping US Treasury and MBS paper, entirely by surprise as they scrambled to withdraw the last traces of available liquidity from the market, and to place as much of it as possible within the safety (and we use the term loosely) of the Fed. In the just released H.4.1 update, foreign Reverse Repos with the Fed soared from $81.3 billion to $124.5 billion, the most ever, and a weekly surge of $43.2 billion, the second largest ever, second only to the Lehman collapse. Furthermore, as noted daily, European banks have been doing precisely that with local cash from non-US subsidiaries, and parking near record amounts with the ECB (today the European central bank disclosed a whopping €253 billion had been deposited with it: just shy of the 2011 high), even as they have been dumping US Treasurys on one hand, and now are forced to repo what little paper they have left with the Fed due to systemic uncertainties in the MF aftermath, one can see why suddenly there was absolutely no liquidity left in the market, and why the meager €3 billion EFSF bond offering, so desperately needed to fund the ongoing Irish bailout and which incidentally is the story of the week, had to be pulled.

Behold the surge in weekly international reverse repos:

And the total weekly international reverse repo notional: we have a new all time record!

As the chart below shows, Fed reverse repo notionals are a very distinct leading indicator to the inverse performance of European financial stocks. Considering this, it would stand to reason that European banks are set to have some very turbulent upcoming days, as the money which should be in the market and be used to buoy European fin stocks, is far, far away, parked at some server located at Liberty 33.

The moral of the story is that the MF Global bankruptcy happened at the worst possible time. On one hand, European banks have been dumping tens of billions of US Treasurys, yet with the aftermath of this primary dealer bankruptcy, they have had to halt such sales and instead pledge USTs as collateral, thereby completely soaking up all incremental liquidity in the market. Recall that reverse repos are used by the Fed as a liquidity absorbing mechanism.

Which means that, all else equal, the pain for European banks, courtesy of the allegedly criminal mismanagement of the company of one Jon Corzine, is about to hit previously unseen levels.

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Careless Whisper's picture

Which means that, all else equal, the pain for European banks, courtesy of the allegedly criminal management of the company of one Jon Corzine, is about to hit previously unseen levels.

perhaps alot sooner than you think.

J. Corzine, MFCEO, Getting Slapped With A Subpoena



paarsons's picture

So when does it all fall apart.

Probably never.  These evil assholes are actually quite adept at keeping the ball in the air for a long long time.

CrazyCooter's picture

Presented without comment ...

... if you can't figure this math out ... or which side you are on ... well ... <insert some crap about history you won't read here> ...



Hohum's picture

When does it fall apart?  When oil (WTI) is a little over $100.  Give the DOW another 15% at most.  When it's that much higher, WTI will be knocking on $110.

Mr Lennon Hendrix's picture

All of this has to do with oil.  From the Fall of '08, to the Wars around the globe, to the current collapse of the Fiat Ponzi, it all comes back to oil.

Richard Chesler's picture

Cockroach banksters will surive holocousts and nuclear attacks.

Live with it bitchez!

piceridu's picture

I agree, I'm beginning to think that after what happened in 08 with the Lehman crash, and Paulson scaring the shit out of the dumbfucks in the House and Senate, that this will never end because nobody's watching the store. I wonder if they can just splash as many digits around the world as they want with impunity. 

Mr Lennon Hendrix's picture

They can; until gold is worth how much though?  $100k per?  LOL!

spankfish's picture

Like all good shoplifters, the one's on Wall St. are watching the store.  Loot and pillage my friend.

CPL's picture

It took 20 years for the Savings and Loans to finish in court, WorldCom is still going, BreX I don't think has ever been closed.


Courts for baby lawyers to get their teeth cut and endless legal fees, what could be more kenysian.


Frankly I'm bullish about the whole

Buck Johnson's picture

What was truly funny today was when a they thought Jeffries was another MF.  Whitney had to come out and essentialy defend them saying they weren't risk takers.  People where saying they where the same size and same rating and where investing like MF.  I think that there are alot of bodies that are about to float to the surface and MF was the first.


And as of right now this minute, go to CNBC and Commerzbank is the next body.  This is getting crazier and crazier.

CPL's picture

Well of course they are, CNBC can't justify it's 24 hour infomercial channel without defending it's sponsor.

Miss Expectations's picture

J. Corzine, MFCEO, Getting Slapped With A Subpoena


J. Corzine, MFCEO, Getting Beaten Senseless with an Arrest Warrant.

max2205's picture

Bernie Ebers comes to mind. When does he get out?

spdrdr's picture

This is bullish, right?

navy62802's picture

Definitely bullish ... extra bullish with some bullishness on the side. Hell, with all this extra bullish news coming out over the past few days, I don't know why we're not at Dow 14,000.

FranSix's picture

This is black swannish of the soft variety, like a felt swan swimming down a river of ashes.


Pancho Neruda Six

John_Coltrane's picture

In the language of "1984", its double plus bullish!

Bwahaha WAGFDSMB's picture

To the printing presses!  Damn the inflation, full speed ahead!

Mutatto's picture

So how fast can the money parked at the fed be recalled to the banks?


Tyler Durden's picture

It's not a question of speed. It's a question of confidence (ref: Jefferies). With the SEC's perpetual inability to enforce anything, and with moral hazard every place you look, confidence is gone.

Terminus C's picture

The question is, how many more primary dealers are going to drop off in the next week or so?

seek's picture

That's a good question. I think the other good question is how many go away before we hit a confidence breaking point. I think maybe two more is the limit, and they better be small.

Spitzer's picture

I would guess some Euro land primary dealers are hurting.

CrazyCooter's picture

TD, I must dissent. All global markets needs is ... well ... more cowbell. If the 'Nank had three neurons touching in his skull, he'd have Christopher Walken on the white courtesy phone stat. I mean, he puts his pants on and knocks out GOLD!

Baby, don't fear the reaper.



Mutatto's picture

Thanks.  So it's not really an issue for the bank making the deposit so much as it is for the OTHER banks that might have wanted to use the funds?

navy62802's picture

To me it doesn't look like "perpetual inability" to enforce anything. It looks more like corrupt refusal to enforce their own regulatory laws. I can only buy the ignorance cop-out so many times before it just looks like blatant corruption.

WonderDawg's picture

It is, without question, blatant corruption.

deKevelioc's picture

If all the bastards go to jail, who will replace the useful idiots?

i-dog's picture

a) They're not idiots. They are very deliberately complicit and corrupt!

b) There are plenty of reserves all warmed up and waiting on the benches for an opportunity to take to the field!

For every politician who "won" a chance to dip their snout in the swill trough, there are 6 more who lost and will be trying again.

For every bank executive who got promoted to a "bonus" slice of the swag, there are a dozen more jostling for position to take their place.

For every career regulator who has turned the other way and pocketed a bribe, there are a dozen more waiting to take their place as they exit through the revolving door to a cushy position with a "benefactor".

It's the system that is corrupt, not just the individuals who are "following the rules", "following orders" and/or "following the money".

As a corrupt senior cop once confided in me when I asked him why he did it: "You either get on the bus or get run over by it!"

Government is the problem, not the solution ... and the biggest problem of all is a remote central government!


DeadFred's picture

What are the remaining factors between the present situation and a cascade of liquidity withdrawal like the one that made the Fed and Treasury say we were hours from collapse in '08? Just time, or were there other critical factors which have yet to rear their heads?

Mactheknife's picture

When the sharks smell this much blood in the water....could be just one more little moronic keystroke away that causes some great white to take a big ole bite and take this corpse down.  Happy hunting.

westboundnup's picture

Oh that shark bites . . . with its teeth babe.

Arkadaba's picture

There is no shark in the water. Have been looking to see one since 2007 but none sighted yet.

Arkadaba's picture

Multiple connent - sorry all

holdbuysell's picture


Why are many here at ZH pulling cash out of the financial system and parking it in hard assets, e.g. precious metals?

DeadFred's picture

Maybe in part, but grab a gold coin, heft it in your hand as you gaze at the pretty color. To get that feeling from looking at a paper account I think you'd need a 7 or 8 digit number on the bottom line.

Hohum's picture

Maybe because precious metals have outperformed most stocks since the beginning of the year (and before, too).

css1971's picture

How is this taking cash out of the financial system?

You pay money to someone, what do they do with it?

LongBallsShortBrains's picture

It goes to all the employees of the mint and the mine and all they consume, it goes to taxes on the mine and the employees and all they consume. It goes to the driver who delivered the fuel to the mine, to his boss, and the trucking company itself, and to taxes on the drivers income, all he consumes, taxes on the trucking company, taxes on the fuel .....................etcetera etcetera

In the end,
It mostly goes to taxes.

scatterbrains's picture

btw as I understand it looting, pilaging or outright theft of account funds, should it cause a default/bankruptcy does not technicaly trigger a cds payout just so you know.

Treason Season's picture

...confidence is gone = lose your counterparty = buy gold

HAL 9000's picture

Has the mission been completed? You know that I have the greatest enthusiasm for it.

Terminus C's picture

Boom! Bitchez...

PicassoInActions's picture

lets get it clear.. will the eruo go down or up?

i am interesting in currencies only.

Any sugestions?