Bank Of International Settlements Warns Of $65 Trillion Of Debt Gone ‘Missing’

The following report is by Bloomberg:

There’s a hidden risk to the global financial system embedded in the $65 trillion of dollar debt being held by non-US institutions via currency derivatives, according to the Bank for International Settlements.

In a paper with the title “huge, missing and growing,” the BIS said a lack of information is making it harder for policy makers to anticipate the next financial crisis. In particular, they raised concern with the fact that the debt is going unrecorded on balance sheets because of accounting conventions on how to track derivative positions.

The findings, based on data from a survey of global currency markets earlier this year, offer a rare insight into the scale of hidden leverage. Foreign-exchange swaps were a flashpoint during the global financial crisis of 2008 and pandemic of 2020, when dollar funding stress forced central banks to step in to help struggling borrowers.

To be sure, the debt is backed by an equivalent amount of hard currency. To understand how the system works, consider a Dutch pension fund buying assets in the US. As part of the transaction, it will often use a foreign-currency swap to exchange euros for dollars. Then, when it’s closed out, the fund will repay dollars and receives euros. For the length of the trade, the payment obligation is recorded off-balance sheet, which the BIS calls a “blind spot” in the financial system.

It’s that opacity that puts policymakers at a disadvantage, according to BIS researchers Claudio Borio, Robert McCauley and Patrick McGuire.

It is not even clear how many analysts are aware of the existence of the large off-balance sheet obligations. In times of crises, policies to restore the smooth flow of short-term dollars in the financial system — for instance, central bank swap lines — are set in a fog.

They wrote

Central banks have found ways to manage the demand for dollars during times of stress. The Federal Reserve has tools, such as swap lines and the FIMA Repo Facility, to help prevent markets from seizing up.

For researchers at the BIS, it’s the sheer scale of the swaps that’s worrying. They estimate that banks headquartered outside the US carry $39 trillion of this debt — more than double their on-balance sheet obligations and ten times their capital. Accounting conventions only require derivatives to be booked on a net basis, so the full extent of the cash involved isn’t recorded on a balance sheet.

There is a staggering volume of off-balance sheet dollar debt that is partly hidden, and FX risk settlement remains stubbornly high.

Borio, head of the monetary and economic department at the BIS, said

Global Libor Transition Has Reshaped Trading, Hedging, BIS Says

In a separate report on Monday, the BIS also flagged the settlement risk as another potential source of instability in the foreign-exchange market. Researchers estimate that $2.2 trillion of daily currency turnover was subject to settlement risk, the possibility that one party to a trade fails to deliver the asset.

Payment-versus-payment arrangements, a settlement mechanism that coordinates transfers to ensure no one is left holding a claim, tend to be unsuitable or too expensive for certain trades, the BIS paper said.

There is clearly an urgent need for wholesale market participants to look for alternative ways to eradicate settlement risk exposure across a broad range of currencies outside of the traditional majors.

Jerome Kemp, president at post-trade processing firm Baton Systems, in response to the paper, said

SEE: Bank For International Settlements Completes Successful Pilot Of Cross-Border CBDC Platform

---

AUTHOR COMMENTARY

Yea, they are greedy dogs which can never have enough, and they are shepherds that cannot understand: they all look to their own way, every one for his gain, from his quarter.

Isaiah 56:11

If you are like me then you could not trust the official numbers and metrics the media tells and the government publishes; and this admission from BIS exemplifies that.

We are told that America has over $31 trillion in federal debt and growing. Based on the BIS analysis, I think it goes without saying that the REAL amount of debt is probably so astronomical it make would our heads explode; from all the under-the-table deals, settlements, bounties, contracts, buyouts, etc., that are going on away from the public eye.

A wicked man taketh a gift out of the bosom to pervert the ways of judgment.

Proverbs 17:23

Moreover, it also important to note that the Federal Reserve’s money printers that are working 24/7 are also not included in the debt load either.

Everyone in ‘the business’ knows that there are multiple balance sheets: one for the public and multiple ones that all these criminals at the top have.

Divers weights are an abomination unto the LORD; and a false balance is not good.

Proverbs 20:23

---

[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).

The WinePress needs your support! If God has laid it on your heart to want to contribute, please prayerfully consider donating to this ministry. If you cannot gift a monetary donation, then please donate your fervent prayers to keep this ministry going! Thank you and may God bless you.

CLICK HERE TO DONATE