Capital flows are indicating that there is a high concentration of dollar hoarding taking place in Germany. There remain intense fears over Deutsche Bank which has deep links to the major US banks that are highly involved in derivatives.
There is a rising concern that this time with the culprit being a regulated bank in the EU which has sworn not to bail out banks, that there can be a major contagion that this time impacts the US banks which the Fed cannot control as was the case with AIG.
That was an American insurance company which if it went down, it would have taken Goldman Sachs with it.
The dilemma this time is the Fed cannot bail out Deutsche Bank.
The crisis in liquidity is emerging as players fear a host of scenarios but remember the Lehman and Bear crisis took place in Repo first. For that reason as well, people are hoarding dollar instruments but are reluctant to put them in REPO for fear of default at any moment.
The bank stocks getting hit you will notice are all those with high derivative exposure linked back to Deutsche Bank. That means the leader in this banking risk decline is, of course, Goldman Sachs. The others in order of risk are Citigroup; Morgan Stanley; Bank of America, and JPMorgan Chase. The bank with the LEAST exposure to derivatives is Wells Fargo.
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