BNP Paribas has now decided to suspend transactions done with the Turkish Lira (TRY) in regards to its FX prime brokerage unit, as Bloomberg had reported. This decision comes just after a week since Turkey’s regulator had lifted a ban it had imposed on BNP Paribas and two other global banks, earlier this month.

BNP Pulling Out Of Turkey’s FX

Furthermore, the BP unit of the France-based lender has transferred its trades regarding TRY to the close only position. The BP unit serves as a client segment, including family offices, hedge funds, and other buy-side institutions. What this means is that the BP unit has stopped accepting new orders, and will only accept settlement orders that reduce or close existing positions for its BNP customers.

This news came shortly after it was made clear that BNP Paribas was expanding its focus on prime brokerage. As a testament to this, the firm has recently brought in 1,000 new staff members, having made a deal with Deutsche Bank. This deal entails BNP Paribas assume full control of the German-based lender’s prime brokerage operations.

Plugging Leaks Caused By COVID-19

Prime Brokers have recently come under scrutiny, as they always do during times of financial crisis. This is due to the capital-intensive nature of their business inflating the balance sheets, due to how they finance the transactions of their clients through the extension of credit.

The banking regulator of Turkey made a statement on the 7th of May. Through this, it made it clear that the FX units of BNP Paribas, Citigroup, and UBS Group would no longer be allowed to process transactions that involve the Turkish lira. This ban was kept in place for four days after it was determined that these lenders could manage to fulfill their liabilities in Turkish Lira transactions to the various local banks.

Rampant Drops In Liquidity

Furthermore, Euroclear Bank and Clearstream Banking were also temporarily halted from doing transactions within TKY within Bridge, a platform they shared. The official reasoning for this is due to liquidity restrictions on the TKY due to the chaos that was the COVID-19 pandemic’s effect on the finance industry.

The TKY experienced massive movements as investors started to worry over the lack of reserves within the country that could protect them from the impact of the pandemic. The collapse of the lira has already begun to spread to other market currencies, as well.

These new restrictions came just as the Turkish banking watchdog set to make it tougher to bet against the local currency, as well. As a result, the amount of lira that the Turkish banks can make available to foreign investors have been limited, and further barred local lenders from trading lira at three global banks.