Eurodollar University You Won’t Believe What Global Banks JUST Did
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May 22, 2025 The podcast dives into the striking rise of bank lending to offshore entities, raising questions about potential risks during economic downturns. It connects these lending trends to past financial crises, highlighting instability in bank-shadow bank relationships. The discussion delves into the behavior of shadow banks and the unpredictable risks they pose amid evolving credit cycles. With increasing loans to non-bank financial institutions, the fragile economic landscape could face significant challenges in the near future.
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Surge in Bank Lending to Offshore Funds
- American banks lent a third of a trillion dollars to offshore shadow banks in Q1 2025, an unusually large amount amid worsening liquidity and economic questions.
- This rise in lending to offshore investment funds is counterintuitive as banks generally de-risk during monetary uncertainty.
Lending Spikes Signal Monetary Stress
- Historical spikes in bank lending to offshore shadow banks tend to coincide with periods of economic stress and monetary difficulties.
- These unusual lending increases contradict typical risk-averse bank behavior during troubled times.
Banks as Lenders of Last Resort
- Large increases in regulated bank lending to shadow banks often occur simultaneously with worsening liquidity and financial turmoil.
- Resale (repo) activity correlates strongly with these lending surges, indicating banks act as lenders of last resort in eurodollar markets.