The Banking and Strategy Initiative

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European Banks Debt Crisis: ECB holds rates, increases eligibility of collateral

Draghi’s ECB rate meeting went off on an optimistic note but the  Bundesbank joined the band of Euro critics yesterday slamming the ECB chief for lowering his standards on credit claims acceptable. The added eligible claims for collateral free up to EUR 200 bln more in LTRO when the window opens this month, showing that further issues of collateral dog this recovery effort even in the 3 year LTRO window , the second LTRO 3 yr window can be anything between EUR 300 bln to EUR 600 bln. The ECB Press conference interestingly gave no hnt of a board member dissenting over the expanded use list of the LTRO, which is anyway touted as no requiring collateral. The Euro system of Central Bankers assume the risk of all such paper ECB proposes on their balance sheets.

ECB in the meantime was  proud of the temporary stablisation in the markets since end November in his policy speech

Another note of dissent appeared as the ECB President clarified that ECB giving money to EFSF would be like giving money to governments which seem to be the way forward on the Greek Government Bonds, sppecifying ECB could not take any loss on the same. Last heard the political agreement on Greece had not converted into a austerity agreement with Greece on the ground with the Greek polity unable to ink EUR 325 m in Pension cuts and need to produce enough to fill the same hole, again ECB President Draghi game to spreading the misplaced news of Greek good fortunes and a agreement having been reached. Blowback on Draghi directed attention at the change of LTRO eligibility rules which would expand the available security universe by EUR 600 bln and Draghi was quick to respond using his policy speech to attack the Central Bankers and Josef Ackerman dissenting to the “Stigma” on the use of LTRO funding and counter claims on LTRO as media speculation

Summit games can be wildly confusing for the markets and the ride is getting us more than we hoped for. It would make sense now for the crisis’ increasing ‘drachmatisation’ to reverse in the remaining days if February with Greece signing austerity measures and staying in the Union and Mario Draghi not requiring any collateral for funding the banks remaining mandatory obligations of 2012 and engendering liquidity int he meantime, which is what he is doing.

The first LTRO tranche of EUR 489 bln has helped and the second one will be welcomed, with or without German dissent as Germany has already come out stronger int he crisis and without extra poclets to roll over  freshly printed bonds / Euros there is hardly any influence any individual economy can bring to bear int he scheme fof things currently, the above debate and argument dying ont he shelf itself

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This entry was posted on February 9, 2012 by in Financial Markets and tagged , , , , , , , .


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