I have written a retraction of this diary. The retraction can be viewed here.
The Forbes article upon which I based this diary, and which caused me to write this post, was a fabrication.
The Chinese Central Bank has not stopped bank transfers, as Forbes claimed.
I don't mean to cause alarm, but I'm hearing some things that aren't very good about banks in Europe and Asia in the past few days.
I'm not going to go chicken little and say that the sky is falling and the banks are about to collapse again, but these news stories don't paint a very pretty picture of what's going on with two of our bigger trading partners, and their banks.
On January 16th, the Telegraph wrote an article saying that according to some analysts in Hong Kong, British banking giant HBSC has 70 billion pounds less than they are supposed to be holding on to, and they were recommending that their customers sell assets associated with HSBC. That article has been taken down, but its corpse still exists over at Internet Archive. I can't find any article on the telegraph mentioning a retraction, they just took the article down.
I read portions of the article quoted on indie blogs which are hit or miss, and there's some discrepancies in the portions quoted online, so for the sake of accuracy I won't quote them. I didn't think much of it until I read the BBC a few minutes ago.
HSBC has instituted a cap on large withdrawals. They say it's because they have a duty to their customers to prevent them from making foolish economic decisions, but they're not giving people their money if it's over a certain amount and the customer can't give them a satisfactory reason why they would need a large amount of cash.
One gentleman, who was attempting to pay a loan back to his mother, was refused a 7,000 Pound withdrawal. The bank said they wouldn't give him that much money unless he had a letter from his mother.
A number of HSBC customers have been complaining.
Normally this would have me going "Interesting, it looks like HSBC is in trouble. Well that's just one bank, right?"
Except it's not.
Forbes is reporting that China has issued a three day suspension on all bank transfers. They say it's for maintenance reasons, but Forbes isn't buying it:
The specific reason given—“system maintenance” at the central bank—is preposterous. It is not credible that during the highest usage period in the year—the weeklong Lunar New Year holiday beginning January 31—the central bank would schedule an upgrade and shut down cash transfers.And that may be all it is. A bunch of wealth management products, loans, and complex financial instruments are about to go into default. And that's going to hit the Chinese banking system, hard, but they don't want people abandoning Chinese currency for the dollar, euro, or pound, so they shut down the system that allows speculators to hedge their bets.
A better explanation is that the country’s banking system is running dry...
[T]oday’s “system maintenance” notice is a sign of a fundamental problem. Banks, in short, need cash to rollover ever-increasing amounts of nonperforming loans and wealth management products. This month, cash needs are even higher than normal because of the impending default of the Credit Equals Gold wealth product scheduled for January 31. Analysts are worried that the failure, if it occurs, will cause a China-wide panic.
Something is very wrong in China at the moment. Banks’ apparent need to conserve cash, coming just weeks after the last incident, looks ominous.
Meanwhile, banks in Europe aren't performing well.
And it's not just Britain and China. Barrons said yesterday that Germany's Deutsche Bank just reported a 1 Billion Euro loss for the last quarter of 2013, where they were forecast to make 700 million in profits.
I don't want to run around with my hair on fire and scream that the sky is falling, because we don't know what's happening. Banks, by their nature, are tight-lipped about their business. You only see them making noise when they've had an extraordinary and unusual successful run.
But I'd keep an eye on the banking industry this week. Something might just be happening. It's possible that the banks are just making their quarterly reports right now, and our economy is shaky, so things just aren't looking good for the moneyed classes. They'll have to buy fewer yachts this spring, and so forth. But it's also possible that something might be up, and as Forbes says, the next week is looking ominous.
We know that our banks have relationships with each other more complex than the entangling alliances that kicked off World War One. Since the banking collapse in 2008, there's been no real regulation to clip the connections between banks, and prevent one bank's mistake from hurting the rest of the economy. We haven't reinstated Glass-Steagall , so the gamblers are still connected to the rest of the banking system in an unhealthy relationship.
I don't know if anything is happening globally. I do know that in the US we're facing a student loan bubble as more and more students go into default or forbearance like I have. But what I'm most worried about is what happens with our current congress if things come crashing down again.
Republicans have played chicken with economic apocalypse before. I really doubt that they'll be interested in doing something responsible if we find out that the banksters we bailed out last time drove the world into a ditch again.
So here's hoping that China weathers the default storm, and with about 3 trillion in assets, there's no reason that Chinese banks would have significant trouble dealing with their international responsibilities. Here's also hoping that the bleak reports of things going on in Europe are just a result of the ongoing economic downturn.