Trust in Banks is Falling

HSBC imposes restrictions on large cash withdrawals
Some HSBC customers have been prevented from withdrawing large amounts of cash because they could not provide evidence of why they wanted it, the BBC has learnt.

Listeners have told Radio 4's Money Box they were stopped from withdrawing amounts ranging from £5,000 to £10,000.
That is from the U.K.

In China, the bank asked what I wanted to do with the funds from a wire transfer. I don't know why they asked, but later when I saw this HSBC story and considered the recent stress in the banking system and bank closure in Yancheng, it made me wonder. Whereas at another time, I would have only assumed it was to stop hot money inflows or was a long-standing regulation being enforced under President Xi.

Here's Egon von Greyerz:
If you take the Turkish lira, that plunged to new lows this week, and the Russian ruble is at the lowest level in 5 years. In South Africa, the rand is at the weakest since 2008. The currencies are also weak in Brazil and Mexico. But there are many other countries whose situation is extremely dire, like India, Indonesia, Hungary, Poland, the Ukraine, and Venezuela.

I’m mentioning these countries individually just to stress that this situation is extremely serious. It is also on a massive scale. In virtually these countries currencies are plunging and so are bonds, which is leading to much higher interest rates. And the cost of credit-forward swaps in these countries is surging due to the increased credit risks.

So why are we seeing this major pressure in emerging markets? People are worried about these countries’ ability to repay. This fear was triggered by the Fed’s tapering announcement. Most of these nations have very low reserves in relation to external debt, and they are totally dependent on rolling over the loans.
The Fed's taper announcement last May plays a role, but an equally large role is played by China's slowing/rebalancing economy. Aside from the total basket cases such as Argentina and Venezuela, countries such as Brazil, Indonesia and South Africa all depend on Chinese demand for resources. Meanwhile, across other emerging markets there was a buildup of credit in part due to emerging market strength, fueled by Chinese growth which came from out of control loan growth, but also caused by hot money flowing out of the United States. The system is starting to move in reverse and another emerging market bust may picking up speed.

The last big crisis came in 1997-98. In 2008, there would have been another huge crisis if not for the central bankers all over the world. Remember that the U.S. dollar was rallying during the crisis. Unlike 1997, the U.S. economy is no longer larger than emerging markets. The global effect of another emerging market crisis will be larger (and the list of countries shows it is already covering a larger geographic area).

Also important: all of these nations are customers for Chinese goods and also in some cases export competitors. I covered this most recently here: Yuan Arbitrage Replaces Trade as Exporters Go Bust; Endgame Begins for China Bubble, but it has been a story for going on three years now. Chinese exporters have very thin margins and demand from the EU and US is flat at best. China must devalue to stay competitive or accept slower economic growth (slower than already forecast).

Finally, consider the last sentence in the quote above: "Most of these nations have very low reserves in relation to external debt, and they are totally dependent on rolling over the loans." China doesn't have an external debt problem, but it does have debt that far exceeds currency reserves used to back the yuan, and it the financial and real estate markets, and thus the whole economy, depend on rolling over the loans. The main difference with China then, is that if (when) the yuan devalues, it can find a bottom sooner.

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