The Banking and Strategy Initiative

Chillin' out till it needs to be funded

European Banks Debt Crisis: Europe & the 3 yr Loans (LTRO)

That fringe blog as it likes to call itself is trying to run the shop like a frustrated Euro trader but his acuity is delightful as it gives us a lot to share in the public domain next only to the diligent team at Reuters Insider and the half a dozen full day teams at Bloomberg mostly and CNBC some times

As we already cleared in these forums the last one was done with this month’s EUR 220 bln in obligation, a nd a new LTRO is required to keep European inter bank markets liquid. the magnitude of the second one is definitely not idle speculation and the analysis ( we won’t bother presenting the graphic here as Tyler (Durden) /zerohedge does not support sharing so magnanimously..

A magnanimous ECB operation for February under Draghi, as Credit Suisse recommends probably puts paid to all the debt repayment obligations and the multitude of MRO s and ELAFs as wells as the slight discomfort from deposit flight and the ledftover LTRO ops probably taken care of in the meantime, while the sudden inflows could also completely dumb down any spikes in Spain and Italy that could disturb the fabric even as Greece is walked to the gallows by the end of this month, defaulting and then we hope the Budget Commisioner or other ECJ entity finds a way to keep them within the Eurozone. Simpler and yes, the Reserve requirement reduction release of EUR 103 bln ( thanks again Tyler/zerohedge ) can match the deposit flight that has happened yet.

However , as there is a lull for repayments due for banks till later in the year after February’s approximate requirements have been taken care of by LTRO 1 2011  ( 3 year ops) the ECB may roll in smaller bits at a time especially if the Germans have their way and Spain and Italy are needed to be as cagey as the Greek, a risk the Germans should not want, even as their own Industrial Production see saw is likely to make them conscious. Adding extra dollars would not increase any local speculative activity and is best left to US banks with time on hand, maybe

Thus yes a EUR 300 bln would do for time to come but the other EUR 250 bln will also haev to come from the ECB in due course, esp as the zone has no money in real hard currency to  give away if only to creditors and thus it will have to proceed giving ECB an unlimited Balance shet and here it will be the ECB following US economists and the Fed Balance sheet example so gleefully supplied in the first 3 years of the crisis. But then this simplistic analysis may have too many devils missed in the details.

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This entry was posted on February 7, 2012 by in Financial Markets and tagged , , , , , , , , .


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