China Bank Has Suspended Trading With Some European Banks' Foreign Exchange Rivals

Worries about the European debt crisis make some Chinese banks limit The credit limit for some European funded banks has been suspended and foreign exchange transactions with some European banks have been suspended.

In September 20th, foreign trade quoted many traders saying that 2.92,0.01,0.34% (hereinafter referred to as "BOC") had suspended trading with foreign counterparts in some European funded banks, Reuters said. suspend The main transactions are foreign exchange swap and forward trading, and the suspended trading partners include the European banks which were previously downgraded.

The banks that were stopped by the rumors were France's Societe Generale (12.83, -0.01, -0.08%), Paris bank and Agricole Credit Bank of France. After opening yesterday, the shares of Societe Generale and Bank of Paris fell by more than 5%.

Foreign trade also said that many Chinese commercial banks are paying close attention to the euro area. crisis Another state owned bank has suspended the RMB interest rate swap (IRS) transaction with some European banks.

A person familiar with the operation of the bank told the first financial daily (micro-blog) reporter that some of the big state-owned banks, including the Bank of China, had imposed restrictions on the credit lines of some European banks after the huge loss of $2 billion 300 million caused by the "devil traders" event in UBS. Because the foreign exchange forward and swap transactions need to take up the quota and the time limit is relatively short, the two businesses are most likely to be suspended when the credit limit is limited. The bank's External Liaison Department declined to comment on this issue.

The source said that in the 2008 financial crisis, Bank of China has also limited the counterparty's credit line.

Worry about counterparty risk

As the European debt crisis intensifies, concerns about the risk of counterparty sides of European banks are rising.

Counterparty risk refers to the risk of default arising from the failure of the counterparty to fulfill its contractual obligations. Dr. Zhao Qingming, a senior analyst at CCB, said that the suspension of relevant transactions by the Bank of China is mainly concerned about the possible breach of the counterparty by the counterparty.

Take foreign exchange swap as an example, the two sides agreed to exchange a certain amount of currency B with currency A, and exchange the same amount of currency A with the currency B in the future agreed date at the agreed price. The first time a party with a high interest rate currency must compensate the other party. The amount of compensation depends on the difference in interest rates between the two currencies. Therefore, if the counterparty has a credit risk, the other party will suffer losses.

In fact, the default probability of European banks is increasing. In September 20th, Fitch Ratings indicated that the European crisis did not show signs of slowing down. The turmoil triggered by the crisis will continue. This will affect the overall credit level of European countries and banks. Some vulnerable countries and banks will face greater risks and their credit rating is likely to be directly downgraded.

Prior to this, Moodie has lowered the ratings of faxing bank and Credit Agricole bank and placed the rating of the Bank of France in Paris on the list of possible downgrades. UBS, after experiencing a huge loss of $2 billion, was also placed on the negative rating by S & P.

In addition to counterparty risks, the current international financial market exchange rate fluctuations will also deepen the risk of foreign exchange products themselves, Zhao Qingming believes that taking into account the risks of counterparties and assets of their own risk, suspension of trading is a rational choice.

Countermeasures vary from one line to another.

As China's largest bank of overseas assets, the bank's move is not surprising.

In the mid-term performance conference 2011, according to Yue Yi, vice president of Bank of China, Bank of China held bonds of European currency, mainly including government bonds and financial institutions debt of Britain, Germany, France, Holland, Switzerland and other countries.

In addition, as at the end of 6 2011, the bank also held bonds issued by the governments and agencies of Portugal, Ireland, Italy and Spain, which accounted for 1 billion 136 million yuan of book value.

The industry believes that because of the position of the Bank of China's interbank bond market as the main market maker, its trend has great influence on other banks.

A foreign exchange trader at a bank in Beijing told our correspondent that other banks may be "different in line" when dealing with foreign exchange transactions with European banks, that is to say, it is possible to stop some foreign exchange transactions in different periods or in different categories.

In addition to ICBC, other Chinese banks hold smaller European debt positions. Yang Kaisheng, President of 4.09,0.02,0.49%, recently said that ICBC holds a small amount of foreign currency denominated bonds, emphasizing that it does not own eurozone sovereign bonds. Foreign currency denominated bonds accounted for 0.5% of the bank's total assets as at the end of June. However, the four major state-owned banks hold large scale foreign exchange swap and forward contracts.

Reuters said yesterday that it had contacted some Chinese banks and several foreign banks, including three other big firms, which said they were doing business as usual, but kept a close watch on the situation. Reuters also quoted a market person as saying that another Chinese state owned bank would suspend trading with other European banks in the interbank market for human IRS transactions.