Looks like the banks are stocking up.....

MacMickster

An interesting analysis of this from Robert Peston

http://www.bbc.co.uk/news/business-16282463

Frankly, it can't seriously be argued that in behaving in this way the risks for the European Central Bank, and for the taxpayers that stand behind it, are lessened.
Because the whole reason that eurozone banks are perceived to be weak at the moment, and why commercial lenders are shunning them, is that these banks are seen to have excessive exposure to sovereign borrowers who may not be able to repay all they owe.
Or to put it another way, the ECB is taking a double solvency risk: on the solvency of the bank to which it lends and on the interconnected solvency of the sovereign standing behind said bank, and to which said commercial bank has lent.
Yuk.
I put this to a senior European Central Bank official a few months ago. The eloquent reply? A shrug.
The second big technical issue is that the European Central Bank is in some ways encouraging the demolition of the unsecured lending market for banks, which, for banks at least, is the nub of the difficulties they face in borrowing.
Now, the European Central Bank won't lend to banks without taking security from the banks, which is the normal central banking way.
But the ECB is only having to do this on such a large scale because eurozone banks can't borrow from lenders on an unsecured basis.
Here's the thing. As more and more of a bank's assets are pledged to the European Central Bank and national central banks as collateral, that bank has fewer and fewer unencumbered assets. This means that any residual unsecured lender to that bank would perceive that there are fewer free assets at that bank that - in a crisis - would be available to repay unsecured loans.
Or to put it another way, the more that banks become dependent on secured borrowing, whether from central banks or other lenders, the more reluctant any investor will be to provide unsecured loans to those banks.
All this has a disturbing implication, which is that there will be an almost inescapable credit crunch. Some banks will face collapse at the moment that banks have pledged all their unencumbered assets to central banks and other lenders, because those banks will at that point have run out of sources of credit.

tomterm8

Kennyboy66 wrote: »

What happens if 18 months down the line those nice Spanish bonds or Italian bonds are worth 60% of their current value because the euro has broken up ?

Will Eurozone banks be treated differently than UK ones ?

I presume the definition of "quality" does not extend to the hapless Greeks ?

Quite frankly, it doesn't matter, because the situation with the kind of banks that are getting this deal is that if the euro breaks up the banks will be rupt anyway.

wotsthat

Huge demand for ECB's three-year loans - http://www.bbc.co.uk/news/business-16282206

Eurozone banks have rushed to take out cheap three-year loans offered by the European Central Bank, borrowing 489bn euros ($643bn; £375bn).

Looks like Christmas has come early for the banks. Unlimited loans at 1% interest - I bet the queue for this giveaway looked like an Apple store when the iPhone was launched.

Generali

Well the ECB just lent out a total just shy of EUR500,000,000,000 to 523 banks for 1134 days, ie repayable 29 Jan 2015. We'll see how that goes. Of course the ECB has now taken on 2 lots of risks: counterparty risk (that the bank they lent to goes bust) and collateral risk (that the collateral becomes worth less than the debt).

As Prof Kelly (University College Dublin) wrote earlier this year, ""The ECB can then learn the basic economic truth that if you lend....to insolvent banks backed by an insolvent state, you are no longer a creditor: you are the owner". The ECB could well end up being the biggest owner of banks in the world before too long.

tomterm8

When you add to that the high rumours that the Fed directly bailed out a EU bank at the discount window last weekend, and that it has a $85 billion swap with the ECB running at the moment (more than before the Lehmen crash), you get the feeling that central bankers are quietly bailing with all possible speed.

purch

Have you seen the film "Unstoppable" ?

http://www.imdb.com/title/tt0477080/



....where is Denzel when you need him :eek:

Masomnia

purch wrote: »

Have you seen the film "Unstoppable" ?

http://www.imdb.com/title/tt0477080/



....where is Denzel when you need him :eek:

Worst film I've seen in a while

Wookster

purch wrote: »

Have you seen the film "Unstoppable" ?

http://www.imdb.com/title/tt0477080/



....where is Denzel when you need him :eek:

We don't need denzel, we do need:

wotsthat

Generali wrote: »

Well the ECB just lent out a total just shy of EUR500,000,000,000 to 523 banks for 1134 days, ie repayable 29 Jan 2015. We'll see how that goes. Of course the ECB has now taken on 2 lots of risks: counterparty risk (that the bank they lent to goes bust) and collateral risk (that the collateral becomes worth less than the debt).

So that is all due to be paid back 29/01/15? The ECB are going to be sweating like pregnant nuns on 28/01/15.

Generali

wotsthat wrote: »

So that is all due to be paid back 29/01/15? The ECB are going to be sweating like pregnant nuns on 28/01/15.

There's no problem you see. These are loans using high quality collateral such as Spanish and Italian bonds.

Nothing can possibly go wrong now.

IMHO this is the ECB financing Governments via a different means. They must have agreed it while Merkel popped to the lav.