Here Are 350 Billion Reasons Why Banks Want You To Ignore Turkey’s Turbulence

Here Are 350 Billion Reasons Why Banks Want You To Ignore Turkey’s Turbulence

Despite Erdogan’s paranoia over “an interest rate” lobby or blaming the Lira’s collapse on the Fed, as Gavekal’s Nick Andrews notes, Turkey is showing no signs of stabilization. As the sell-side scrambles to explain how this is all priced in and “contained,” it is very apparent from the following chart just how vulnerable to contagion the world is if Turkey defaults. The country’s liabilities have multipled dramatically in recent years with over $350 billion of foreign bank exposure to Turkey on an ultimate risk basis.

Fragile and Complacent… (and in denial)

Gavekal notes – Turkey is not, however, showing any signs of stabilization. The lira continues to fall, and policymakers are doing little to contain the situation.

With soaring inflation, a plunging currency and a run for the exits, one would think Turkey would do what other emerging markets did during last year’s taper tantrum, and hike rates.

Instead the new economy minister said recently that this is not necessary, since the country is in tip-top shape. “

As Gavekal notes though – Europe’s exposure would likely be mitigated by the European Central Bank with their now standard response of pumping excess liquidity into the euro system to ensure no bank runs out of cash. This might explain why the peripheral eurozone countries are not suffering more fallout from Greece’s exposure to Turkey.

However, with the new template in place, depositors in Europe’s banks exposed to Turkey may well prefer to pull their cash than trust their will be no haircuts for ECB aid

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