Roger's 1998 Short Picks Message Board

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Strategies & Market Trends : Roger's 1998 Short Picks

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To: Joey Two-Cents who wrote (7225)	4/17/1998 10:49:00 AM
From: Oeconomicus	of 18691

Joey, re bank exposure to derivatives: For the risk to be as great as the article implies, one must assume that banks' derivative positions are heavily weighted on one end of the yield curve or on certain currencies or that the counterparties to their positions are generally shaky credits. I think that most of the time, banks are taking positions between various counterparties as an intermediary (or hedging their own balance sheet) and that the various exposures offset one another. In aggregate, they look huge, but their positions are more like arbitrage positions and not net long or short positions. The real risk is taken by the company that swapped fixed for floating only to see rates rise or the other side that found itself locked into high fixed rates when rates are falling. Same goes for currencies. Now, if the BIS is suggesting that some banks are loading up on one side of the market, that's a whole other issue, but the nominal or face amount of derivatives positions is not really that meaningful IMO. But then, it's been a while since I read the IFR every week, so WDIK? Regards, Bob

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