Today's Crunch Catalyst: Asian Banks Commence Cutting Credit Lines To French Banks, Sparking Self-Fulfilling Prophecies

Tyler Durden's picture

Remember how we joked (but were dead serious) that the IMF is now simply a figurehead organization, and the real global bailout cop is China? Well, that may not be the case for much long. Reuters has just broken news that at least one bank in Asia, and five other in process, has cut credit lines to major French lenders "as worries about the exposure of French banks to peripheral euro zone debt mounts, banking sources told Reuters on Thursday." Why is this worrying? Because as is by now well-known, the PBoC has been as aggressive a buyer in the primary market of European market as most European banks, which as is well-known immediately turn and pledge said debt as collateral to the ECB for 100 cents on the euro, and the fact that its proxies are now quietly withdrawing from the European market as lenders of last resort, is probably far worse news than a rumor that the S&P may cut France.

Reuters continues:

That sudden rise in risk perception, combined with sharp share price falls in French banks, prompted some banks in Asia to speed up reviews of counterparty risk and look at whether they should cut exposure to European lenders, sources at each of the six banks in Asia said. Contacted about the moves by the banks in Asia, a spokeswoman for top French lender BNP Paribas <BNPP.PA> in Paris said: "We never comment on market rumours."


Societe Generale <SOGN.PA> had no immediate comment to make while a spokeswoman for Credit Agricole <CAGR.PA>, which will publish its second-quarter earnings later in August, said the bank would not make any comment.


The banks in Asia and the sources -- a mix of risk officers, senior traders and loan bankers -- could not be identified because of the sensitive nature of the information.


The head of treasury risk management for Asia at one bank in Singapore said their credit lines to large French banks had been cut because of the perceived risks in lending to these counterparties.


"We've cut. The limits have been removed from the system. They have to seek approval on a case-by-case basis," the treasury risk official said. The bank official declined to name the French banks.


A senior credit trader in Singapore said that when a bank's shares fall that sharply their risk officer will automatically look at how much exposure they have to that lender.

And more:

Banks' heightened responses could exacerbate the market strains if they all acted simultaneously with portfolio-at-risk modelling, analysts said.


"The thing is if they all use it at the same time they will all sell at the same time when risk goes up, and that will drive prices down and it is like a snowball because then the prices go down and then your value-at-risk ratio will tell you 'oh, I must reduce my risk even more'," said Mark Matthews, head of research at Julius Baer.


Several of the traders and bankers in Asia said that while they had not cut all exposure to any particular institution, they were very cautious about taking on new trading positions with them.


A senior risk officer at a bank in Singapore said "obviously we are having a review", when asked if they were reassessing their positions with European counterparties.


Bankers and risk officers at the five institutions in Asia that were still dealing with French banks said that while short-term lending of up to 30 days was still taking place, they were conducting a thorough review of longer-term credit lines regardless of the type of transaction.


"It's all in relation to (our) take on a French bank's credit risk, regardless of whether it's a swap or interbank lending transaction," said a senior loan banker at a Japanese bank.

What happens next is well known to anyone who lived through the fall of 2008: credit lines withdrawn means investors dumping stock in droves, means depositors staging physical money runs, means more credit lines withdrawn, means immediate liquidity crunch, means rumors of insolvency, means self-fulfilling prophecy, means scramble to get funding first from ECB, then from Fed, but by then contagion has spread and the entire financial system is in danger of imploding, means several trillion in FX swap lines activated to prevent a run on the dollar, which also happens to be the funding currency, means another scramble to bail out capitalism.

Granted this is a downside case assessment.

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achmachat's picture

physical bank run?
Dude... People have become way too passive for that!

RollOver's picture

Now people do it over "Le Internet", probably not while watching soup de jour, but while reading ZeroHedge. Me guessing the latter folks are plenty buy now.

falak pema's picture

rollover : plenty sell roll over and play it again Sam!

Cojones's picture

La merde a battu le ventilateur.

breezer1's picture

c'est diddely quack, quack diddely,'pooh'.

Stumpy's picture

Not "battu". More "frappé" or "atteint".

Sudden Debt's picture

Q. Why don't Master Card and Visa work well in France?

A. They do not know how to say "CHARGE!"

Q: Why did the French plant trees along the Champs Elysees?

A: So the Germans could march in the shade.


Q: What do you call a French man killed defending his country?
A: I don't know either, its never happened!

Q: What Does "Maginot Line" mean in French?
A: "Speed bump ahead" 

Q: Why do the French never perform “the wave” at a soccer game?
A: Because, that’s a gesture reserved for use only in time of war. 

Raise your right hand if you like the French ... raise both hands if you are French. 

"Do you know it only took Germany three days to conquer France in WWII? And that's because it was raining."

The French have only one actual fighting war hero, Joan of Arc, and they turned her over to the enemy!

Q: Why do people always talk about the 'foreign legion'?
A: They couldn't find any French to join! 

Q: Why did the French plant trees along the Champs Elysees?
A: So the Germans could march in the shade. 


slaughterer's picture

"Granted this is a downside case assessment."

Any upside?

<total silence>

Guess not!

slaughterer's picture

And with this news item, ES futures go RED.  This web site is dangerous.  

wombats's picture

WOW!  Not RED, but it really did drop.  Just a coincidence I'm sure... <snarc>

Actually I'm sure the reall reason for any drop is probably global warmin.


Translational Lift's picture

And....EU now considering a ban on short selling!!

wombats's picture

Bullish for BofA?

BeerGoggles's picture

Bloomberg were just saying yesterday how zerohedge caused many rumours. Guess ZH will be taken to court soon.

wombats's picture

Probably just have their URL conficated by Big SIS first.

Hedge Jobs's picture

in the world of B'berg, CNN, CNBC, fox truth = rumours

MsCreant's picture

No, called in front of congress to account for their traitorous actions.

slaughterer's picture

I think the algos just scan the headlines of ZH at this point.  Tyler is the global MM.    

Bob's picture

So at least it will be immediately forgotten. 

slaughterer's picture

BOA = DOA (Already concluded last night here).  

Mad Mad Woman's picture

I said a couple of weeks ago that France will be the first domino to fall. Looks like it's coming true. Lots of people thought Italy would be the 1st to fall. It's going to be France. Moody's and S&P already gave them the kiss of death whethere they realize it or not. 

Are your seat belts fastened? Got extra cash stashed? Stocked up on basic necessities?

achmachat's picture

Boxes of canned ravioli good until 2015.
Does this count as basic necessities?

sabra1's picture

damn!!! and i live in Quebec!!!!

Stumpy's picture

So do I. And I'm evaluating scenarios where I'm better off to my homeland region, far away from big cities and where fishing, hunting and gathering are a way of life. Forget gold and silver there though, not sure if people had ever seen an ASE or a Maple.

sushi's picture

Freeze Dried poutine.  Good for a decade.

chinaguy's picture

Viva La Lehman!

gwar5's picture

I thought you were off to buy more farmland, CG -- I'm with you on there, but gonna sit tight on my PMs too. 

The wobbly banks/sovereigns leaves few other options. Rolling economic blackouts appear to be in our future.

TaxSlave's picture

It's not bailing out capitalism.  It's killing capitalism.

What if the sheeple decide not to be enslaved by these debt-bonds?

That's right.  REPUDIATE!

This is the culmination of a century's worth of effort to make every citizen of the world beholden to the central banks through money-printing.  The only monkey wrench in the works is the internet.  People are waking up to the fact that they are being impoverished by money-printers, and waking up to the fact that the plan is to make them slave away forever to pay off paper-money debt with real goods.  A burden that can never be paid off.

It WILL NEVER be paid off.  The only question is, will you consent to be enslaved by them for it?

I say, it's not my debt, and I'm not paying it.  Let the damned banks fail.

chump666's picture

the chinese are terrible investors, good savers, just have no idea how to invest in modern markets.

ez indexes are going red again.  

Re-Discovery's picture

... and it means the Fed will be extending $1 trillion in bailout funds to Eurozone as worthless fiat goes global.

twinshot's picture

"a battu" ? "frappe" je pense mais pas battu, non?

Stumpy's picture

In Quebec, we would have said: "la marde" and not "la merde".

vast-dom's picture

So how is France not BBB+? What exactly is their true GDP? What exactly do they export? What do they exactly produce?


And then apply very same questions to the good ol' US of A.......

Sudden Debt's picture

What exactly do they export?



Helmholtz Watson's picture

What exactly do they export?


Wine, stinky cheese and an exceptionally undeserved level of arrogance

mfoste1's picture

EZ bank collapse, but US taxpayers will probably bail them out again, even though its obvious it doesnt work anymore

Bob's picture

More money always works . . . for banksters.

youngman's picture

About a month ago the Fed reopened up the cash window for Foreign banks....seems to me they knew what was going to happen....don´t worry the USA WILL be bailing out Europe......Secretly of least for two years...Banks always win

Tyler you need a checklist on your predictions.....I think we will hit one every week...

Peter K's picture

And to think that the "silver bullet" to the present situation is for the Germans to pull out of the Euro. But that would bring to an end the 4th Reich (and the lastest socialist experiment)prematurely. But we can't let that happen, now can we?

vast-dom's picture

No not quite: 4th Reich REGROUPS and functions not as "partner" but as discount PURCHASER of Euro BARGAINS! And the war is won, sort of.....

Yen Cross's picture

  And scumbag European Bankers buying dollars, to hide in Bernankes ass cheeks!  I'm livid!

Peter K's picture

Socialism in its death throes.  And I still think that the one with the least socialized government will be the one that will survive the best. I'm putting my money on post Soviet Europe and the US.


Bazooka's picture

I have not posted for quite a while but have been enjoying my HUGE profits in VXX, FAZ.

(Those who followed my earlier posts weeks ago and profited too, cheers!)

It's All the Same Market (R. Prechter). I believe the current massive divergence you're seeing in Gold and Silver means Gold will fall like Icharus with melting wings. The fall will be more swift than its rise from $900 has been. Many tears will be shed...except from those who hold cash and shorts.

Mighty profits await us!

WonderDawg's picture

I'm pretty much right there with you. I've been anticipating this for about a year. It's been a painful year, but it took less than 3 weeks to erase the gains the market has made in the last 12 months, so it appears those of us who didn't lose faith in Prechter after his numerous failed attempts to call a top are positioned favorably for this scenario.

taraxias's picture

You mean there's someone out there who actually listened to Prechter and is still solvent?!!!!!

I'm never ceased to be amazed on here :)