{"id":546795,"date":"2010-04-29T06:50:00","date_gmt":"2010-04-29T10:50:00","guid":{"rendered":"http:\/\/www.businessinsider.com\/if-banks-didnt-short-the-euro-and-greece-theyd-be-in-even-deeper-trouble-2010-4"},"modified":"2010-04-29T06:50:00","modified_gmt":"2010-04-29T10:50:00","slug":"if-banks-didnt-short-the-euro-and-greece-theyd-be-in-even-deeper-trouble","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/546795","title":{"rendered":"If Banks DIDN’T Short The Euro And Greece, They’d Be In Even Deeper Trouble"},"content":{"rendered":"

\"Tight<\/p>\n

Major U.S. and European banks would be exposed to far more risk from the Greece crisis if they weren’t allowed to short the euro and European sovereign debt.<\/p>\n

That’s because a collapse of Greece’s financial system, or further stress on the broader eurozone system, would have substantial negative effects on major banks through many parts of their large and varied businesses.<\/p>\n

They’re inherently massively exposed to a Greece\/euro crisis if they have anything to do with Europe. Thus they need hedges to reduce this exposure from a risk management stand point.<\/p>\n

That’s why they are shorting the euro and European sovereign bonds including those of Greece, France, and Germany.<\/p>\n

Risk.net:<\/a><\/p>\n

Banks should, by now, be protected, says the London-based market risk head at a large UK bank. “If Greece defaults tomorrow and some bank stands up and says ‘I’ve lost a billion dollars on Greece’, they should fire everybody. Greece is an old story.<\/strong> What we’re trying to figure out is what happens next. Is it Portugal? Italy? Spain?”<\/p>\n

Large banks will have all kinds of assets and liabilities to balance, many of which have long-Europe exposure but which cannot be removed from the balance sheet. They need ways to balance these exposures in order to reduce risk.<\/p>\n

Faced with this range of possibilities, banks have tried to focus on something they can get their hands around – for example, the possibility yields at the long end of the euro interest rate curve could widen substantially or, conversely, tighten. “There are scenarios where the curve should steepen a lot and ones where you could expel a bad country – which would set a precedent – and I think the long end of the euro curve would look just great as a result. So it really could break either way,” says the US bank’s market risk head.<\/p>\n

His bank has been seeking to hedge a eurozone crisis scenario by shorting the euro. The European bank’s risk manager says the institution has been doing something similar, but using German and French bonds as a proxy for the eurozone and shorting them instead. <\/strong>Of course, those hedges might backfire if Germany did choose to walk away from the single currency. “It’s another concern. We’re very short Germany and France, as I’m sure a number of other banks are,” he says.<\/p>\n

Thus take away shorting mechanisms from markets and banks would all simply betting on the same long-Europe trade with no way to insure themselves.<\/p>\n

Just because they are short certain securities doesn’t necessarily mean they are net-shorting the euro, and hoping that Europe falls into chaos. Though some hedge funds could be net-short Europe in various ways. In fact most global financial institutions probably remain net-long Europe’s financial situation regardless of the short-hedges they may have in currency or sovereign bonds, since a collapse of the euro economy would probably be ugly for them, even if it were mitigated by gains on some short positions.<\/p>\n

Join the conversation about this story »<\/a><\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Major U.S. and European banks would be exposed to far more risk from the Greece crisis if they weren’t allowed to short the euro and European sovereign debt. That’s because a collapse of Greece’s financial system, or further stress on the broader eurozone system, would have substantial negative effects on major banks through many parts […]<\/p>\n","protected":false},"author":6205,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-546795","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/546795","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/6205"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=546795"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/546795\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=546795"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=546795"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=546795"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}