The three-year loans, the longest maturity ever offered by the ECB, are the eurozone central bank's latest attempt to ease the region's debt crisis. The ECB hopes the limit-free, ultra-cheap and ultra-long funding will bolster confidence in banks, ease the threat of a credit crunch and encourage banks to buy Italian and Spanish government debt, thereby pushing down the countries' borrowing costs. “While this doesn’t fix the long-term structural issues in the EU, it may ensure a rally for risky assets into the new year,” said Jeremy Cook, chief economist at foreign exchange firm World First. "It looks like Christmas has come early for the European banking sector - however, in the place of Santa Claus, with his big white beard and jolly smile, the benefactor looked a lot like Mario Draghi." Today, banks switched €45.7bn out of one-year loans taken from the ECB. The impact on overall liquidity levels was also softened after banks scaled down their three-month borrowing from the ECB to €30bn from €140bn and almost halved their intake of one-week loans this week. Europe's banks are now more reliant than ever on central bank funds. French banks have almost quadrupled their intake of ECB money since June to €150bn, while banks in Italy and Spain are each taking more than €100bn. Earlier this week, the ECB said in its semi-annual Financial Stability Review that this dependency could be difficult to cure. Wake up Europe!!! .... they're doing to you what they've already done to both the US and the UK - giving the Banks all your money with no strings or assumed ownership. Not getting it the first time is bad, but your watching the perennial repeat, for goodness sake. The best you could say is they're giving the banks such a good deal that overcapitalizing themselves is a breeze, but the thing is....... they will overcapitalize no more than they absolutely have to!!!!!! they like leveraging the GDP, your hard work, out of your Government much more than actually doing the graft involved in real Banking.
5 comments:
European consumer confidence is crumbling. The EC just released its latest data, showing that consumer morale in euro countries fell to -21.9 in December, from -20.7 in November.
There was a similar drop in confidence across the wider European Union. This is at odds with data from Germany yesterday, showing that consumers in Europe's biggest economy were holding their nerve.
The drop in confidence is a blow to retailers in the run-up to Christmas - who must be fearing that shoppers will rein in their spending while the euro crisis continues
"Of course even this report seems to focus on government debt of many EZ countries. But personally when your debt to GDP ratio exceeds 900% (as is the case for the UK), it seems foolhardy to focus on the rather small debts of Greece and Italy."
Hold on! Greece and Italy are being focused on because they cant service their national debt as its denominated in a foreign currency. The UK can fund its sovereign debt forever via the BoE and doesnt have to rely on some botched up 3rd party mechanism via the ecb getting the eurozone banks to purchases dodgy southern european bonds. Also the fundamental reason they are up the preverbial creek is that theyre trapped in a deflationary monetary union at the wrong parity.
Re the private debt, yes it is a real burden but you cant just blame the financial sector - for every loan made there was a willing taker. UK households chose to use their houses etc as cash machines for consumption, the banks provided the cash they wanted ie its a 2 way thing.
Also, even that can be tackled by some imaginative use of QE forms eg giving every a lump sum with those in deb having to pay it back and not spend the newly minted cash.
Response to aussiereader4, 21 December 2011 09:07AM
Let's hope you are right...
In the same perspective, France borrowed very cheaply two days ago. But Greece saw its costs surge again yesterday...
Which could mean that until the problem of Greece is definitely resolved in a way or another, the runs on sovereign debts in the Eurozone could start again at any moment.
I think that the ECB is buying time with its increasing lending facility. The real question is: how much time will it give the EU to take strong (and federalist) political actions ?
Whilst not technically correct "qe through the back door" isn't the worst description I've heard, the ECB have once again found a "solution" and circumnavigated around their own "rules" but as Michael Hewson points out at CMC in the blog the liquidity issue may be temporarily solved but not the solvency issues..
So the UK can just keep printing money ad infinitum? At what point does it not cause a problem with the currency??"
It causes a problem when the productive side of the economy cant meet the demands made by the ever increasing money printing eg Weimar Germany and post land grab Zimbabwe. UK is nowhere near either of those and sterling has actually risen slightly since QE started. It collapsed in response to the collapse in the real economy.
"And how is the vast Financial sector debt because of household borrowing, when those households are paying back their loans at much higher interest rates, than the banks pay?? "
Thats the problem, the banks cant get cheap funding as they wont lend to one another and the whole system is clogging up. Look at RBS - its casino is being shut down but its making very little money on "normal" banking activities.
"This ideological nonsense, is going to be the death of this country. Is there anyone out there in the finance world that can see the madness in UK financial sector debt? Or are you paid to be blind to it?"
If you could avoid cheap personsl shots with no basis it would help. There is no ideology involved - point out where there is please if youre so certain of it. As Mr Holmes says stick to facts!
There is indeed much madness in the UK financial sector but it is being reined by Vickers and also state ownership of RBS forcing them to wind down its investment bank. Plus the UK is going further than anyone with reserve requirements and the banking levy.
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