Bank of China halts forex swaps with European banks

Bank of China (BoC; 601988.SH, 3988.HKG) halted its trading of swaps and foreign exchange forwards with several European banks on Tuesday due to continued instability in the European financial system, Reuters reported, citing anonymous sources familiar with the matter.  Bank of China stopped trading with Societe Generale (GLE.Euronext), Credit Agricole (ACA.Euronext) and BNP Paribas (BNP.Euronext); another unnamed Chinese bank has allegedly followed suit. “Apart from spot trading, all swaps and forwards trading [with the European banks] have been stopped,” said one source. Bank of China has also stopped trading with UBS (UBS.NYSE) while the financial services company investigates a US$2.3 billion loss caused by a rogue trader. The financial impact of BoC’s decision may be limited. “My guess is that the Chinese banks are not major providers of liquidity or funding to the European banks, so it’s not of direct relevance to their businesses,” said Adrian Foster, head of financial markets research for Rabobank. “But it does send an important reminder that there are risks to this balancing act.”