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

Masomnia

Generali wrote: »

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.

So the money that the ECB lends, is that 'new money', as in QE? Or is it out of reserves?

Heyman_2

Generali wrote: »

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

Oh that's alright then, I thought they were taking any old toilet paper as collateral :eek:

Heard on the Radio that the ECB is hoping that the banks lend the money to businesses etc.

I'm sure they'll do that and not just use the money to shore up their balance sheets. Nope, no-siree, no chance of that. :money:

Generali

Masomnia wrote: »

So the money that the ECB lends, is that 'new money', as in QE? Or is it out of reserves?

It's QE lite. Instead of 'printing' money to buy assets, they're printing money to lend against assets.

The difference is subtle.

worldtraveller

Apparently €300 billion of the LTRO tender is recycled old money from earlier support operations and the "new" money is €200 billion.

Generali

worldtraveller wrote: »

Apparently €300 billion of the LTRO tender is recycled old money from earlier support operations and the "new" money is €200 billion.

From memory, they moved out a load of older repos from 3-12 months to 36 months.

wotsthat

Generali wrote: »

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.

That's good news because according to the Guardian something like €210bn of the €500bn lent so far has gone to Italian and Spanish banks.

Some reports I've seen seem surprised at the popularity of these loans. I'm surprised that anyone could be surprised that collecting free money has turned out to be anything else but a roaring success.

michaels

Free money - is that the same as 'risk' free money? Borrow from us at 1.5% and buy some dodgy Italian bonds yielding 6%...but of course any capital loss on the bonds is yours to 'keep'.

Of course if the bonds are issued by your own country so that if the bonds default you are screwed anyway then the risk/reward profile is different.

purch

The difference is subtle

But important.

Lending against assets means that the addition should "not" be permanent, as the EUR will be repaid, and ultimately removed.

Buying assets means that it could be permanent, and therefore possibly inflationary at some stage.

tomterm8

purch wrote: »

But important.

Lending against assets means that the addition should "not" be permanent, as the EUR will be repaid, and ultimately removed.

Buying assets means that it could be permanent, and therefore possibly inflationary at some stage.

That's one view. My own is that this is actually QE heavy: the ECB is limited as to what it can do in terms of monetary policy, but the reality is that this is as near a permanent injection as money as you can get within european law.

Basically, european law forbids the ECB to bail out governments directly, it does not prevent the ECB from bailing them out indirectly.

We had a lot of arguments in 2008 when the UK government was using the same practice to finance it's deficit: the ECB is doing the same thing.

Joe_Bloggs

Given the ECBs limitation on directly lending to member states. I could mention the the film EZ rider .What next for the ECB ? Loans so the recipients can speculate on world markets ?
J_B.