Speculation on New ECB Lending Programme

There has been a lot of focus in the past few days on stories based on leaks of Thursday’s stress tests results. Perhaps more important, however, is the question of what the plans are for the €150 billion in central bank funding that the Irish banks are currently receiving.

Two interest stories here and here suggest there is lot to be negotiated on this issue. While less visible than the question of the interest rate on Ireland’s EU loans to the sovereign, the questions of how long the Irish banks will have to pay back these loans, and at what interest rate, are perhaps more important.

36 thoughts on “Speculation on New ECB Lending Programme”

  1. There seems to be a huge variance on the numbers being quoted for the liquidity support schemes with Karl at 150b, Eoin Bond at 163b and Bloomberg at 186b. Anyone got accurate figures? I suppose at this stage 36b difference is just another number.

  2. “Stark added that the Irish central bank’s Emergency Liquidity Assistance program for banks “cannot be a permanent state of affairs,” the newspaper said. He also said the ECB is opposed to Ireland making bank bondholders share in the costs of any restructuring, FAZ reported.”

    Above from the link posted by Ciaran O’Hagen.

    So we can forget about bank bondholder burning. They have to wind down this ELA thing at the ICB.

    So we keep on borrowing the other 100b short term. Some solution.

  3. @ CP

    My €150 bn figure comes from the following.

    CB Money and Banking stats, Table

    Table A.2 shows “other assets” at about €70 bn at the end of February. This is up from about €3 bn when there was no ELA, so €67 bn is a rough guess at the amount of ELA>

    Table A.4.2. shows borrowing from the Eurosystem of the six covered banks at €93 billion at the end of January. However, the CB statement when the latest CBI balance sheet was announced indicated that half of the €20 billion rise in ELA was due to an offsetting decline in ECB lending.

    So my estimates are 67bn in ELA, 83 bn in ECB = 150.

    Those who quote higher numbers probably are probably including lending to non-guaranteed banks which I think isn’t very relevant.

  4. @Karl
    Thanks. As you suggest Bloomberg (and others) must be including non-guaranteed banks.

  5. @Jack Watts

    Call me crazy but I thought collateral had to be worth something.

    And if the collateral is not worth a dime, the logical thing to do is value it accordingly. Thereby of course driving up the PCAR requirement exponentially.
    Now if the ECB values the bank collateral at zero, I do hope it has informed the people doing the PCAR. And informed itself of its own view on the valuation of Irish bank assets.
    You really do need a knowledge of schizophrenia to keep up with this ****.

  6. @Ciaran O’Hagan
    re Juergan Stark

    Stark added that the Irish central bank’s Emergency Liquidity Assistance program for banks “cannot be a permanent state of affairs,” the newspaper said. He also said the ECB is opposed to Ireland making bank bondholders share in the costs of any restructuring, FAZ reported.

    I have to ask a simple question. Are the ECB board members independent of the large European banks or are they merely mouthpieces for them?

  7. Reporting suggests that

    (1) The ECB facility will be “medium term”
    (2) A government guarantee will be required
    (3) There will be conditionality attached to the facility

    To use the vogue phrase, if it walks like a duck, swims like a duck and quacks like a duck isn’t this new facility a bailout and are we now not effectively doubling the bailout last November?

  8. @ Joseph Ryan
    I do respect the integrity and independence of central bankers. Those in Europe in particular are public servants first and foremost; almost none have experience of commercial banking (which I actually find rather worrying). Even someone like Mario Draghi had a good career in the World Bank/Italian finance ministry, before taking an advisory role to GS management (for only 3 years). Such cross-fertilisation is unfortunately very rare. Yet it is imperative if you are going to manage something like the FSB, like Draghi.
    Unfortunately people who combine all the qualities for these jobs – sound economics training, wide banking experience, managerial and communications skills, + a balanced and robust personality – are not in abundance. Weber had those, but thought better of exposing himself to the flak of such a job, and I can understand.
    I’d also caution against supposing what the positions or interests of banks actually are. Just yesterday, you had Ranjit Teja of the IMF’s strategy and policy department bemoaning the IMF’s lack of access to data to assess the risks that financial institutions may pose to one another and to the system. It is not with a table from the BIS Quarterly Review that we are much the wiser. I have my own view as to where Irish exposures lie, and it isn’t the same as presumptions commonly made in the Irish press. Critically on a Europe-wide scale, they are of manageable proportions (and nor is Ireland the centre of the banking world). And now we see (read the Stark interview) that the ECB doesn’t want to be led astray by a concentration of crisis in a few local banks at the periphery.
    More generally, all banks I’m sure have a strong overarching interest in the stability of financial systems and the prosperity of the economy (I mean on a Europe-wide or global basis). You can’t have one without the other, I’m convinced, like many others.

  9. What exactly constitutes a government guarantee? Does it mean only all the taxes that the government can raise? Or does it mean these taxes plus assets in state hands? Or does it mean these taxes plus state assets plus whatever private assets are necessary to seize in order to make the repayment?
    What exactly is the state undertaking to do when it gives a government guarantee? Does it make every individual of the country liable for that which is being guaranteed?
    If a government guarantee means that every citizen becomes liable then it deprives each citizen of the right to private property since the state is now allowing some other agency have a claim against this private property.
    I suppose what I’m kind of wondering is if socialization of bank debt actually means that the state is failing to uphold its constitutional obligations and is failing to protect the “property rights” of citizens “from unjust attack”.

    In short the government has no right to use the wealth of its private citizens as a guarantee when that guarantee leaves the personal rights of the citizens of the state open to “unjust attack” which is contrary to Article 40.3 of the Irish Constitution

  10. @KW

    I see two problems (i) loan, and (ii) state guarantee

    … leading to increase in our existing problem (iii) further socialization of banking system debt … leading to (iv) higher debt/gdp ratio ….

    … leading to postponed, if inevitable, (v) vichy_bank/sovereign Default.

    This is further ‘smoothing’, as distinct from ‘sorting’ the issue.

    I would prefer (i_real) Capital Injection/Investment (ii_real) ‘taking out’ the state from equation ….. leading to (iii_real) lower debt/gdp ratio …

    …. leading to (iv_real) smiles from Fitch, Moody et al …. leading to possibility of Sovereign re-entering sovereign bond market ….. simultaneously with (v)massive sell-off the entire nationallzed banking system with Axel Weber as the CEO over five years. If Ms Lagarde needs something from the Irish – let’s give her Axel Weber.

    We don’t need more ‘loans’ for banks – we need debt write_offs – and only a mandated ECB or other EZ_facility can do this ………. time for the big bondfire of the eegits is well gone ….

  11. @Jagdip
    “To use the vogue phrase, if it walks like a duck, swims like a duck and quacks like a duck isn’t this new facility a bailout and are we now not effectively doubling the bailout last November?”
    Erm, well we are shifting our obligations (if it is indeed ELA assets that will shift to the new scheme) since we are under obligation to the ICB. Who exactly it is bailing out is not clear, though.

    Imagine what the level of confidence in the eurozone would be if the Irish Central Bank went bust and the Irish state was unable to bail it out. I believe our Guv’nor has just moved the ‘rock’ and the ‘hard place’ to Frankfurt.

    Who says you can’t export ghost estates?

  12. @hoganmahew

    Are you suggesting that The Guv’nor has taken himself, as distinct from being bowled, out? Does this suggest the logical conclusion that an ICB is unnecessary in an I that does not have a BS? If so, I don’t care where the Irish Banking System has been exported to – ‘solong as I don’t have to pay for it. Could this be a classic of the ‘reverse sweep genre’?

  13. @ Ciaran O’Hagan

    ‘More generally, all banks I’m sure have a strong overarching interest in the stability of financial systems and the prosperity of the economy (I mean on a Europe-wide or global basis)’

    The big EZ banks are stuffed to the gills with toxic financial derivatives. How did they become so wobbly that losses in Ireland’s piddling banks threaten to pull them down ?

    All bankers have an overarching interest in profit. Some are so obsessed with it that that they neglect the most basic prudential considerations. Stability my eye. The underpricing of risk played a major part in this debacle, and history won’t be kind to the central bankers who stood over it.

  14. @Hogan
    “Imagine what the level of confidence in the eurozone would be if the Irish Central Bank went bust and the Irish state was unable to bail it out.”

    That is why the ECB need to unravel this 70b time bomb. We know they accepted collateral that the ECB would/could not accept. The ECB allowed them to print money in return for illiquid assets.

    Now what if a number of other eurozone central banks decided that they would print some cash to alleviate their host government’s problems.

  15. @Ciaran O’Hagan
    “It is not with a table from the BIS Quarterly Review that we are much the wiser. I have my own view as to where Irish exposures lie, and it isn’t the same as presumptions commonly made in the Irish press. ”

    Can you enlighten us?

  16. Is the proverbial about to hit the fan?

    IT reporting…
    “The governing council of the European Central Bank (ECB) has yet to decide whether it will proceed with a new medium-term liquidity facility for Ireland’s banks, an informed source said last night.

    Amid intensive discussions about a years-long support programme tailor-made for the Irish lenders, uncertainty remains over the legality of providing such aid for banks which are not held to be financially sound.

    There are fears in some quarters that such a scheme would leave the ECB open to legal attack under the EU treaties as an initiative for the direct monetary financing of government liabilities. In this context, legal advisers are reviewing Article 123 of the Treaty on the Functioning of the EU, which prohibits “overdraft facilities or any other type of credit facility with the ECB” in favour of central governments or the public undertakings of member states.

  17. Paul Quigley

    All bankers have an overarching interest in profit.

    What made you so cynical Paul?

    Banking is an honest trade plied by decent, idealistic men of modest means on behalf of widows and orphans and the entire Irish population deceived and took advantage of these simple dreamers, all while the ECB wished their very hardest that things were ok.

    We need to suffer for our crimes and by Mammon some Irish people are realistic enough to start assigning that pain to the irresponsible public servants, wasteful national infrastructure projects, over educated children and feckless unemployed who did so much to undermine the European financial system.

  18. @ all
    The Stark interview.
    ‘Die Staaten müssen schwache Banken rekapitalisieren’ into Google and then Google translate seems fine.

    Stark is predictably pushing the ‘Irish problem’ firmly back to those irresponsible Pixies. As John McHale points out in the next thread, however, the black hole in the Eurozone is spreading.

    Ireland may be up to its knees in the proverbial, but it looks like we will have plenty of company in due course.

  19. @all

    Waiting for Bank of Ireland …. Godot to finally nationalize the bleed1n lot about 30 months too late for some, and many that should have been placed against a wall and liquidated at end of 2008. Wiser now are we?

    http://www.independent.ie/business/irish/boi-make-a-lastgasp-bid-to-stop-being-nationalised-2599964.html?from=dailynews

    This galloperin_ideology of anything but nationalization – the N word – needs to be factored into all those upcoming case studies in the presently being rewritten text books on what used to be known as political economy ….. the toxic remnant cloud of the ‘free mawrketeering mawrket solves all’ from the four PD/FF Horsies of the Neo-Kon Apocalypse Mick McDowell, Mary Harney, Charlie ‘fingers to the Commission’ McGreevey & Dig Out Bowel Bertie lingered on into 2008 and beyond up to present day ….. at absolutely horrendous cost to all Irish citizens, present and future ….

    … and zero accountability or responsibility.

  20. @David O’D……….
    The ‘horrendous cost’ you refer to re banks etc – €150,000,000,000 tops?
    ‘Minimum’ is a word being used in so-called ‘informed’ circles…….

  21. @Ceteris

    In this context, legal advisers are reviewing Article 123 of the Treaty on the Functioning of the EU, which prohibits “overdraft facilities or any other type of credit facility with the ECB” in favour of central governments or the public undertakings of member states.

    Seem to me like a rearguard action by the ECB which would clearly like to drive a stake through the heart of what remains of Ireland.

    But where was their request for legal advice on “overdraft facilities” when the Irish taxpayer had to pony up for what were then private banks.
    The ECB is a failed institution and like all of the Irish banks should be put out of its and our misery.

  22. @vinny

    ta for that – I’d love to meet an ‘informed circle’ …. but rem that cost cannot be measured solely in ‘financial terms’ – the social and the psychological are too often ignored …

    @all
    BoI down 6% … wonder has Richie Rich bought TIME … ? What did he buy it with? Musta written a cheque to himself …. penny drops!

  23. @ All

    7yr long facility is what i’m hearing for the ECB facility, and the risk to be mainly, but not totally, on the ICB/Ireland. Will replace ELA, rather than existing ECB refi-repo borrowings.

  24. @Eoin Bond

    Is this then another bailout as suggested by another commentator yesterday?

  25. @All
    Bit of good news on breaking news IT is that the Government is not going to enrich Wilbur by giving him the EBS. Merger with TSB must be back on the agenda.

  26. Wasn’t ILP being seriously considered as a buyer for EBS until recently ?

    ‘The company, one of two final bidders in the EBS sale process, is offering the Government warrants on a 10 per cent stake in Irish Life & Permanent Group Holdings. Dublin’

    http://www.irishtimes.com/newspaper/finance/2010/1103/1224282560184.html

    That was the Christmas panto I suppose. It’s incredible how far brass neck will take you in Ireland. The vultures wil simply sit on the fence mow and await developments.

  27. At least Michael Noonan made a decision after being in office a wet day unlike the previous bunch.

  28. @ CP

    the EBS decision makes sense in light of the ILP capital requirement and potential nationalisation.

    Originally, when ILP was bidding for EBS, and was the govt’s preferred bidder, the main reason it was not considered an attractive bid (by the govt) was because they were not bringing any new capital to the party. At the same time it did not require any capital from stress tests either. So ILP did not need govt intervention (ie capital), but couldn’t take on EBS because it couldn’t get any capital by itself anyway. So it could not remain a private entity at the same time as taking on EBS.

    However, seeing as the govt will be going into ILP fairly significantly/totally now, there is no major downside from the govt’s point of view of trying to merge the two of them, as ILP will be taking on state intervention either way. If you know what i mean?

  29. @Eoin

    AP-
    “A new bailout bill of euro80 billion would represent nearly euro18,000 ($25,000) for every man, woman and child in the Republic of Ireland — and euro45,000 ($63,000) for every worker paying income tax.

    That figure does not include the approximately euro180 billion that the European Central Bank and Irish Central Bank are providing Ireland’s banks in short-term loans. Those funds need to be renewed every two weeks, and no Irish bank could function today without them.”

    Part of a long story being carried worldwide. Not Good.
    They are still going with the ECB liquidity scheme so what has happened to the Simon Carswell story on legal problems.

  30. No default!

    Provided that the EZ and UK banks keep cash flowing, that exceeds cash ebbing, Ireland will not default!

    But once the flow reverses, the tsunami subsides, the oul’ Beal Bocht may come into play. CT rates be damned, we have them by the short curly ones?

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