DERIVATIVES: Bank Downgrades Trigger Billions in Collateral Calls!

• The financial weapons of mass destruction, the derivatives market is collapsing. This fraudulent market is anywhere between US$700T to US$1,500T in size. No amount of money can bail out the banksters when this market implode. All attempts to bail out the banksters will result in a monetary meltdown! The world GDP is about US$65T! We are talking about a 10x-20x amount of money needed. Jim Sinclair is correct: The end is not near! It is here!
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  DERIVATIVES: Bank downgrades trigger billions in collateral calls! 
  By Christopher Whittall, http://www.ifrasia.com/ 
  A series of ratings downgrades from Moody’s last week has created an unwelcome but manageable liquidity squeeze on three major banks, by forcing them to post billions of dollars in additional collateral against derivatives exposures.
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  Moody’s completed its rating review of international banks last Thursday and downgraded three major derivatives dealers below the crucial Single A threshold, which will likely have led to hefty collateral calls from counterparties.
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  Citigroup’s two-notch long-term rating downgrade from A3 to Baa2 could have led to US$500m in additional liquidity and funding demands due to derivative triggers and exchange margin requirements, according to the bank’s 10Q regulatory filing at the end of the first quarter.
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  Morgan Stanley – which Moody’s downgraded from A2 to Baa1 – said a two-notch downgrade from both Moody’s and Standard and Poor’s could spur an additional US$6.8bn of collateral requirements in its latest 10Q. The bank did not break down its potential collateral calls under a scenario where only Moody’s downgraded the bank below the Single A threshold.
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  Royal Bank of Scotland estimated it may have to post £9bn of collateral as a result of the one-notch Moody’s downgrade to Baa1 in a statement on June 21, but did not detail how much of this additional requirement was driven by margin for swaps exposures.
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  Ratings triggers are commonplace in collateral agreements governing derivatives transactions. These clauses typically force a firm to post more collateral to their counterparty if they are downgraded below a certain level. This is to compensate for the fact that the downgraded firm is seen to have become a riskier trading partner. Moving from being an A rated to a B rated institution tends to be a crucial line in the sand.
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  Many industry professionals have warned of the systemic risk of ratings triggers.  For one, they represent significant cliff risk – in other words, a firm may wake up one day to demands of posting billions of dollars more collateral. In history’s most extreme example, AIG’s downgrade in 2008 led to such a liquidity squeeze on the firm that the US government ended up bailing out the faltering insurer.
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  More calls to come?
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  read more!

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