Monthly Archives: December 2011

Mario Draghi

Mario Draghi, December 8, 2011. Image by Getty.

Will the European Central Bank save the eurozone? This is an extremely controversial question. What is clear, however, is that the central bank is the only entity with the capacity and the calling to do so. Without the euro, the ECB ceases to exist. That is true of no other eurozone institution. It gives it the incentive to act. It is also acting on a large scale.

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Claire Jones

Money Supply will be taking a break over the festive period, returning on January 3.

Wishing all our readers a merry Christmas and, in the words Sir Mervyn King, “a systemically stable 2012″. Read more

Claire Jones

Wondering where all of that cheap cash that the European Central Bank doled out earlier this week has gone?

Well it would appear a sizeable chunk of it has ended up back at the central bank. 

Yesterday the amount of cash that eurozone banks held on deposit at the ECB hit a new record high for the year of €346.994bn. That’s €133bn higher than at the start of the week. Read more

Claire Jones

Will the Swiss National Bank lower the cap on the euro further in the new year? It might have to if it wants to keep companies in the country happy.

The SNB’s latest exchange rate survey, which the central bank compiles quarterly, shows that an even higher proportion of businesses are struggling despite the introduction of the cap at the beginning of September. Read more

Claire Jones

It appears that ECB president Mario Draghi had better things to do this afternoon than turn up for the European Systemic Risk Board’s press conference.

As chair of the ESRB, Mr Draghi was widely expected to join vice-chairs, Sir Mervyn King and Andrea Enria, the head of the European Banking Authority, at today’s presser.

But instead Sir Mervyn was left to apologise to the journos present that they had been left with just him and Mr Enria.

Money Supply has been assured that there was nothing untoward behind Mr Draghi’s no-show. But it would be unthinkable that an ECB president would miss the press conference that follows the monthly governing council vote on monetary policy.  Read more

Claire Jones

Lorenzo Bini Smaghi is one of two European Central Bank executive board members who will quit the Eurotower this month.

This week, Mr Bini Smaghi reflected on his time at the ECB with the FT’s Frankfurt bureau chief Ralph Atkins. Read more

Claire Jones

So the ECB is offering three-year loans with a cheap interest rate. That sounds like a pretty good deal to me. Where do I sign up?

Not so fast. Only eurozone banks, or in ECB parlance “counterparties”, can get hold of the central bank’s cash.

OK, so say I’m a bank, how much can I borrow?

The sky’s the limit.

The ECB has said the size of its longer-term refinancing operations, or LTROs for short, is unlimited. That means the banks can ask the ECB for as much as they like above the minimum amount of a cool €1m. Most borrowers have tended to ask for something closer to a €1bn.

In times of crisis, cash is king. So what stops the banks borrowing tremendous amounts?  Read more

Claire Jones

The eagerly-awaited results of the ECB’s auction of three-year loans are in. The €489.2bn offered is way above market expectations of between €250bn and €350bn.

That will no doubt bring some cheer to markets, who were concerned that banks would shy away from using the facility over fears that they would be stigmatised for doing so. Read more

Claire Jones

The Federal Reserve attracts scorn like no other central bank on the planet.

There’s much to lament in EU politicians’ calls to buy their debt in massive quantities. But none of them have done a Rick Perry and threatened physical violence on Mario Draghi. And it’s difficult to image that a book calling time on the Bank of England would make the bestsellers’ lists, despite the Bank’s recent slump in popularity.

And so, following the publication of yet another Bloomberg article lambasting the Fed for its secrecy (this time over the dollar swap lines with foreign central banks), it is understandable that the central bank has attempted to placate some of its more vitriolic critics by mentioning that the lines make a profit.

But it’s a strategy that could easily backfire. Read more

Claire Jones

In its financial stability review, out today, the European Central Bank acknowledges that the vicious circle between a sovereign’s finances and the health of its banks has become far more pronounced in recent months.

Ultimately, what became painfully clear in the autumn of this year was that bank and sovereign vulnerabilities are inseparable in several countries. At the aggregate euro area level, partial solutions were no substitute for a comprehensive approach to stem contagion and the interplay between fiscal and banking sector vulnerabilities. These two factors needed to be considered in tandem – as two sides of one and the same coin.

The central bank also warns of another facet to this negative feedback loop: the deterioration in the growth outlook. Read more