Bank of China and another Chinese bank have stopped interest rate swaps and foreign exchange trading with a number of foreign banks, reducing their exposure to the eurozone.
Reuters reported Tuesday that the action was taken in the wake of the unexpected downgrade by Standard & Poor’s of Italy late Monday. Unnamed sources cited by the report, including one at the second unidentified bank, identified only Societe Generale, Credit Agricole and BNP Paribas as some of the European institutions affected. French banks, in particular those three, have come under fire in recent weeks for their heavy exposure to Greek debt.
One sources told Reuters that Bank of China’s decision might reach into its branches as well as the mainland bank, and include the onshore foreign exchange market. Another source was quoted saying, “Apart from spot trading, all swaps and forwards trading [with the European banks] have been stopped.”