Bank of China halts FX swaps with some European banks

Tue Sep 20, 2011 5:14am EDT
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BEIJING/HONG KONG (Reuters) - Bank of China, a big market-maker in China's onshore foreign exchange market, has stopped foreign exchange forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe, three sources with direct knowledge of the matter told Reuters on Tuesday.

Another Chinese bank has also halted interest rate swaps trading with some European banks, a source at the bank said, indicating Chinese lenders have joined the growing ranks of institutions cutting exposure to the crisis-hit euro zone. This source requested that he nor his bank be identified because of the sensitivity of the matter.

While the sources said Bank of China had stopped trading the forwards and swaps with several European banks, they only identified French lenders Societe Generale (SOGN.PA: Quote), Credit Agricole (CAGR.PA: Quote) and BNP Paribas (BNPP.PA: Quote).

Bank of China's decision was made partly because of the downgrade of these entities by Moody's ratings agency, the sources said.

One of the sources said that the decision by Bank of China (601988.SS: Quote) (3988.HK: Quote) may apply across its branches, including the onshore foreign exchange market.

"Apart from spot trading, all swaps and forwards trading (with the European banks) have been stopped," a separate source who is familiar with the matter told Reuters.

The sources declined to be identified because they were not authorized to speak with the media. A public relations official with Bank of China declined to comment.

Bank of China has also stopped trading with UBS AG UBSN.VX after the Swiss giant declared unauthorized trading had caused a $2.3 billion loss, the sources said.

Contacted by Reuters after the story was published, spokespeople for Societe Generale, UBS, Credit Agricole and BNP Paribas declined to comment.   Continued...