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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (618)	9/8/1998 1:48:00 PM
From: tom	Read Replies (3) \| Respond to of 3536

The risk to global banking system I thought I'd post the salient points from a report on global banking from Credit Lyonnais Using BIS data and some educated guessing from the IFR on syndicated lending they attempted to calculate the risk to global banking capital from emerging markets. They used the top 500 banks to approximate total bank capital (given that Wing Lung bank in HK is #492 and doesn't do a lot of international lending that's probably a good approximation). The tier 1 capital is almost certainly overstated as it includes Japanese banks (LTCB is #46 ranked by tier 1 capital!!!!). The problem is guessing how much of the lending in HK and Singapore is suspect as most Indonesians will borrow in these two markets for example. Anyway the results are.. Devloped banks world capital US$1,247bn Developed banks ex-Japan US$1,024bn Loans to developing countries by BIS reporting banks (US$bn) Eastern Europe 123 Latin America 283 Africa 58 Asia 381 Total 845 HK& & Singapore 409 Total 1254 Assuming that 50% of lending in HK and Singapore is to emerging credits a 30% write down in emerging market debt would reduce bank capital by about the same amount! There's a catch. These figures don't includes derivatives exposure and to quote from Grant's Interest Rate Observer "The head of the derivatives department isn't going to say that there's a 1-in-100,000 chance that he could blow the firm up. You'd never be in business if you were willing to admit that it may happen" Is that 1-in-100,000 chance that the Malaysian's won't give you any hard currency for a year or that the Russian's don't give you any money ever or that Pak Suharto doesn't feel like giving you his hard earned Rupiah? Finally, don't forget that emerging markets are, on the whole, commodity exporters and, as commodity prices fall, are trying to service interest on US$ loans with every decreasing cash flow. Any comments?