Money Market Fund Exposure To French Banks Will Be A Leading Factor In The Soon Coming Global Economic Collapse. … Derivative Exposure By Large Banks Will Send The Global Economy Into The Dark Ages

Money Market Funds and Derivative Report for September 23, 2011

Doug Noland reports Total Money Fund assets fell $11.8bn last week to $2.621 TN.  Money Fund assets were down $189bn y-t-d, with a decline of $182bn over the past year, or 6.5%.  

Money Market Funds are between a rock and a hard place. Their over exposure to money market funds will be a leading factor in the soon coming global economic collapse, as there will be a run on these investments when they break the buck and fail to provide their constant one dollar base.

Alex Gloy of Lighthouse Investment Management relates in Zero Hedge, “What were US Money Market Funds, MMF, going to do? US Treasury yields are 0.09% for 12 months, 0.02% for 6 and negative 0.01% for 3 months.You can’t deliver negative yields to investors (that would empty the fund pretty quickly) and you still want to charge some management fees. Enter funding-hungry European banks. You might be surprised to learn the following: the world’s largest bank (by assets) is French: According to Fitch Ratings, French banks were the single largest recipient of funds from US MMF.”  Mr. Gloy continues, “ZIRP is likely to have been an important trigger for a USD funding crisis at French banks.”  And Mr. Gloy adds, “I am not sure what possessed MS to increase their exposure to French banks by 300% within a year (I suspect same dearth of lending opportunities given trillions of excess reserves parked at the Fed). The French engagement ($39bn) exceeds MS’s market capitalization ($26bn) by far. Morgan Stanley’s share price has been cut in half since the beginning of the year and is now trading at less than 50% of book value. In other words: the market does not trust it’s books, or believes MS will destroy value going forward (or both).”  Dingleberry comments: “ZIRP has caused all us to become maverick gamblers.” Business Insider relates Signs of an Institutional run on French Banks, El-Erian says and Wall Street Journal reports UK Companies Seen Pulling Cash From European Banks, Governments.

Tyler Durden reports that the latest quarterly report from the Office Of the Currency Comptroller is out and as usual it presents in a crisp, clear and very much glaring format the fact that the top 4 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system. Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding (consisting of Interest Rate, FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial banks (a number that swells to $333 trillion when looking at the Top 25 Bank Holding Companies), a mere 5 banks (and really 4) account for 95.9% of all derivative exposure (HSBC replaced Wells as the Top 5th bank, which at $3.9 trillion in derivative exposure is a distant place from #4 Goldman with $47.7 trillion). The top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure. As historically has been the case, the bulk of consolidated exposure is in Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS ($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion, respectively. And that’s your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all time high and up $5.3 trillion from Q1.


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