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NEWSLETTERS & ALERTS
Qatar Banking System is Confronted by a Wall Street-Like 800 Lb. Gorilla in the Room
by Howard Haykin
The video headline reads: "Qatar Banking System Relies on Foreign Cash for Liquidity."
Middle East Freezes Out Qatar. Nine nations have so far moved to indefinitely sever ties with Qatar, a country of nearly 2.3 million people, most of whom are foreign workers. The original list of 5 countries - Saudi Arabia, the United Arab Emirates, Egypt, Bahrain and Yemen – is now up to nine, with the addition of Mauritius, Mauritania, the Maldives and Libya's eastern-based government. Saudi Arabia has severed all land, sea and air links with Qatar, and the UAE has closed its airports and harbors to Qatari flights and shipping.
► Etihad, Emirates, Fly Dubai and Gulf Air have halted all flights in and out of Doha, the Qatari capital. Qatar Airways says it's halting flights to Saudi Arabia.
► Qatari diplomats have been given notice to leave their foreign posts.
► Qatari citizens have 14 days to leave Saudi Arabia, Bahrain and the UAE, and those countries also banned their own citizens from entering Qatar.
► For further details, click on … CNN.com.
RECALLING CREDIT CRISIS OF 2008. Qatar’s reliance on liquidity sounds eerily like the scenario that faced large Wall Street banks in 2008 – namely, Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley. Two of the four - Bear, Lehman - collapsed when their liquidity dried up; two survived – Merrill, Morgan - only after receiving lifelines from Bank of America and Mitsubishi UFJ Financial, respectively, along with federal bailouts.
In 2008, all 4 U.S. financial institutions stood on the edge of bankruptcy, even though their businesses were, in large part, in order and operating as usual. Cracks in their veneers, however, arose each was unable to secure or obtain ready access to short-term liquidity. In 2017, a similar difficulty is confronting the small and prosperous country of Qatar. Should the freeze extend for a prolonged period, watch for Qatar’s banking system to experience bankruptcies. Which leaves open the question: What impact might that have on the global banking system, and those of individual countries?
This very sensitive time would seem to require a united and conciliatory front among nations. Donald Trump, however, is playing a dangerous game of diplomacy by his decision to support the freeze against Qatar. Thankfully, Secretary of Defense James Mattis and Secretary of State Rex Tillerson took the initiative to quickly offer help in mediating this escalating dispute.