On Wednesday’s auction conducted by the Swiss National Bank(SNB), 17 institutions drew $11.09 billion dollars. That’s the most since October 2008, when the Global Financial Crisis was raging at the heels of Lehman Brothers’ collapse.
These auctions are held each Wednesday and this is the 4th week in a row when banks have accessed the same SNB facility. Last Wednesday, 15 banks drew $6.27 billion in funds.
Commercial banks normally don’t need dollars in such a hurry to the point to go bid to their central bank which will ask the U.S. Fed for billions in swap lines. The main reasons why they normally don’t do this are 1) they can create the dollars themselves as credit, and 2) if they need more they usually borrow them in their national repo market or from another commercial bank.
The names of the 17 banks who consumed the $11.09B swaps are unknown because the bids are annonymous. You may think they would have to be swiss banks(like Credit Suisse or UBS) but not necessarily, because banks residing in other jurisdictions might work through any commercial swiss bank. Especially when talking about a financial center like Swizterland.
Add to this story the recent financial turmoil in Britain and the emergency reaction the Bank of England had to undertake. Also, in recent days the pound sterling reached a historic low against the USD.
Additionally, consider the Bank of Japan’s recent struggles and how the Yen recently slumped to a 32-year low. Today the BOJ conducted emergency bond buying to underpin debt market and yet, yields keep rising.
When Credit Suisse economists were asked about this very uncommon phenonemon, they said banks are probably only doing this for a quick profit. Really? I mean come on! You think the Fed will extend these extraordinary swap lines at times of global financial volatility just to let the swiss commercial banks make a quick buck??? No way! That was just a “play dumb” excuse to avoid markets seeing a potential ‘canary in the coal mine’ on a looming financial crisis.
Many factors are showing us a high probability of a new systemic financial crisis in the upcoming months or even weeks. Whether the extraordinary swap lines extended are the ‘canary in the coal mine’ or not is yet to be seen. But something is for certain, in these crazy markets and out of control central banks, investors and savers should remain alert and prepared for turbulence.