Thursday, August 25, 2011

Crisis Alert: Credit Default Swaps Soaring on European Banks

Harry Wilson reports from the U.K.:
Insurance on the debt of several major European banks has now hit historic levels, higher even than those recorded during financial crisis caused by the US financial group's implosion nearly three years ago.
Credit default swaps on the bonds of Royal Bank of Scotland, BNP Paribas, Deutsche Bank and Intesa Sanpaolo, among others, flashed warning signals on Wednesday. Credit default swaps (CDS) on RBS were trading at 343.54 basis points, meaning the annual cost to insure £10m of the state-backed lender's bonds against default is now £343,540..."I think we are heading for a market shock in September or October that will match anything we have ever seen before," said a senior credit banker at a major European bank.
The ECB appears to be maintaining a remarkably tight monetary policy despite the continuing crisis environment in the eurozone. Obviously, a complete liquidation of malinvestments is the best policy prescription. However, crisis in the eurozone is likely to result in more government intervention. This could lead to a very rapid deterioration of eurozone economies---beyond any banking/stock market crash. 


  1. JH Prediction: if Bernanke disappoints tomorrow, expect $250 billion in new dollar liquidity swaps over the weekend followed by a Hisenrath article Mon. that says yield curve targeting definitely in play.

  2. Nice call!