This article points out the dangers to the value of credit from a rickety global banking system.
A further deterioration in bank balance sheets will undoubtedly call into question the values of individual bank counterparty credit, entire banking systems, central banks, and currencies themselves.
Let us remind ourselves of where we are in the bank lending cycle by looking at the relationship between bank equity capital and their balance sheets.
The chart below shows the aggregate position for the entire US banking system.
The chart tells us that the banks have responded to the trend for ever lower interest rates by increasing their balance sheet leverage to grow their profits at a time when credit margins became increasingly compressed
The US banking system is the best of a bad bunch.
The balance sheet leverage in the large international banks in the Eurozone and Japan is considerably higher, close to twenty times.
https://alasdairmacleod.substack.com/p/the-threat-to-currencies-from-banking
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