European Banks and ECB Funding

The WSJ has an article on the scramble for assets that are acceptable as collateral at the ECB.  (The Irish banks have circumvented much of this by relying on an array of government-guaranteed securities.)

14 replies on “European Banks and ECB Funding”

So, we have a credit crunch in effect. There’s a surprise. We’re heading for a double-dip. There’s another surprise. I’m getting tired of reading that either ‘might’ happen. Of course it will.

Is it true that Unicredit (and others?) were trying yesterday to get the ECB to take some right junk (sorry, I mean ‘assets’) as collateral at the ECB and they were politely shown the door? They have now gone away to consider asset swaps and then try again? That could cause a problem. The good stuff has run out so please take this toxic sh1t Mario. G’wan. You’re on our side aren’t you? Aren’t you?

“They also are a sign that struggling banks across Europe are preparing for a period of prolonged reliance on financial lifelines from the ECB. ”

The banks are increasingly dependent on the organism that will kill them.

Parasitic fungi evolved the ability to control the creatures they infect in the distant past, even before the rise of the Himalayas.
The fungus, which is alive and well in the financial sector today, latches on to carpenter banks as they cross the trading floor before returning to their nests high in the EZ.
The fungus grows inside the banks and releases chemicals that affect their behaviour. Some banks leave the colony and wander off to find fresh funding on their own, while others fall from their EZ havens on to taxpayers.
The final stage of the parasitic death sentence is the most macabre. In their last hours, infected banks move towards the underside of the ECB window they are on and lock their mandibles in a “death grip” around the central vein, immobilising themselves and locking the fungus in position
This can happen en masse. You can find whole graveyards with 20 or 30 banks in a square metre.

If the European banks are really trying to offload lemons to the ECB then they are all in serious trouble. And if the ECB is not accepting lemons as collateral then that means the game is up: The ECB is not going to act as a lender of last resort and it is not going to bail out European banks with German money*.

So, the ECB is not going to bail out banks, and it is not going to bail out states, and it is not going to print money, and no amount of austerity is going to pay the bill. Then there’s only one way out of this impasse: Default, leave the euro, and move on.

Ireland should immediately burn the bondholders, leave the euro, and distance itself from the bankers putsch that the EU is morphing into. Whatever the short term economic pain, we must avoid the long term decline promised by a decade or more of continental imposed austerity. And above all, we must losing our sovereignty, democracy, and freedom as Greece did in its recent coup d’etat.

Anyone for the last few choc ices ?

If ATMs and choc-ices are the price of freedom, then they are worth paying.

I’d rather have no choc-ices than have former student fascists running the country.

*(In fact as bust predicting hedge fund manager Kyle Bass pointed out recently on the BBC, Germany doesn’t have the money to bail out the rest of European Banking-State complex. Germany’s debt to GDP ratio is 80%, and they haven’t yet bailed out their own banks. The whole can is too big to carry and Bass argues succinctly that the only way out is debt write-downs, equity swaps, and defaults.)

The guy you mention..Kyle Bass…is he the guy mentioned by Michael Lewis.
The BBC player won’t work on this machine.

Anyone know if there are any grounds for believing the talk of the ECB lending to the IMF so that they can lend on to struggling EZ countries (aka make sure that bondholders are repaid in full).

ECB ‘eligible collateral’ rules are quite batshit anyway…legalistic, and with limited relation to market reality

It reminds again that it is fundamentally important that all instruments should be traded on a liquid,transparent secondary market that ensures neutrality (via bid anon systems etc). This would ensure that true ‘mark to market’ prices are available.

Whilst stock markets may be a bit crazy at times, they do produce independent prices….most of the vanilla stuff on bank’s balance sheet is opaque…let alone the exotic gunk

The guy you mention..Kyle Bass…is he the guy mentioned by Michael Lewis.
The BBC player won’t work on this machine.

That’s the guy. He’s a fan favourite with the ZeroHedge crowd for being a consistent contrarian towards the “recovery”. It’s also worth mentioning that he stands to make quite a lot of money in the event of a Greece default/ Euro breakup.

bit off thread IMF Speaks

Working Paper No. 11/269: The Eurozone Crisis: How Banks and Sovereigns Came to be Joined at the Hip

Author/Editor: Mody, Ashoka ; Sandri, Damiano

Summary: We use the rise and dispersion of sovereign spreads to tell the story of the emergence and escalation of financial tensions within the eurozone. This process evolved through three stages. Following the onset of the Subprime crisis in July 2007, spreads rose but mainly due to common global factors. The rescue of Bear Stearns in March 2008 marked the start of a distinctively European banking crisis. During this key phase, sovereign spreads tended to rise with the growing demand for support by weakening domestic financial sectors, especially in countries with lower growth prospects and higher debt burdens. As the constraint of continued fiscal commitments became clearer, and coinciding with the nationalization of Anglo Irish in January 2009, the separation between the sovereign and the financial sector disappeared.

Interesting MMT get out of jail card……..
Warren Mosler:
1. The Greek government would announce that it will begin taxing exclusively in the new currency.
2. The Greek government would announce that it will make all payments in the new currency.
That’s it, deed done! The government can now provision itself and continue to function on a sustainable basis.
Now some Q and A:
Q. How will the new currency exchange for euro?
A. The new currency will be freely floating, with exchange between willing buyers and sellers at market prices.
Q. What about the existing euro-denominated government debt?
A. Announce that government will consider it on a ‘when and if’ basis with no specific payment plans.
Q. What about existing government contracts for goods and services?
A. They will be redenominated in the new currency.
Q. What about euro bank deposits and euro bank loans?
A. They remain in place.
Q. What about foreign trade?
A. Market forces will function to adjust the trade balance to reflect foreign desires to accumulate financial assets denominated in the new currency.

Theres more but thats the guts of it.

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