liquidity

Ralph Atkins

The European Central Bank will be back in the spotlight tomorrow (Thursday), when Jean-Claude Trichet, president, gives his regular post-council meeting press conference. But what will he have new to say?

The central bank’s main interest rate seems firmly stuck at 1 per cent, and the global economic outlook has changed little since June’s meeting (Germany doing better, China perhaps worse). There will be questions about European bank stress tests, but these are primary the responsibility of bank regulators (which don’t include the ECB). Greece’s rehabilitation efforts have been given an official thumbs up today.

The action recently has been on the ECB’s open market operations. The euro’s monetary guardian was pleased with its success last week in withdrawing, without upset, some €442bn in one year loans. With the amount of excess liquidity it has pumped into the financial system falling further this week, market interest rates have risen – in effect, tightening monetary policy.

That has prompted speculation Mr Trichet might announce further offers, perhaps for six month liquidity. But Read more

Money market rates have fallen swiftly after Norway’s central bank offered short-term liquidity to banks. Rates remain above those of last week, when they rose following slower-than-normal flows between banks. Tax payments are apparently to blame, reports Reuters:

Norges Bank promised two liquidity loans, called F-loans, in a move designed to reassure markets and which quickly brought down money market rates. The central bank also held out prospects for further loans… Read more

Ralph Atkins

European Central Bank hopes of a smooth return of €442bn of emergency loans it made to banks a year ago have been boosted after demand for three-month liquidity offered as an alternative fell far short of expectations.

Just €131.9bn in three-month liquidity was taken by 171 banks, the ECB reported on Wednesday. Analysts had feared that banks would demand €250bn or more. The low figure suggested banks’ nervousness about their future funding and inability to tap commercial markets might have been overdone. Read more

A key interbank rate has jumped 9 per cent, indicating fears about the health of eurozone banks when 1,121 of them must repay €442bn to the ECB on Thursday. The rate at which banks lend to each other in euros, euribor, has only recently started climbing, following dramatic falls since the crisis.

Market reaction might seem belated, given how widely trailed this liquidity halt has been. A story this morning about Spanish banks lobbying the ECB has probably helped. Read more

Ralph Atkins

Spanish banks have been lobbying the European Central Bank to act to ease the systemic fallout from the expiry of a €442bn ($542bn) funding programme this week, accusing the central bank of “absurd” behaviour in not renewing the scheme.

On Thursday, the clock runs out on the ECB financing programme – the largest amount ever lent in a single liquidity operation by the central bank – under the terms of the one-year special liquidity facility launched last summer. One senior bank executive said: “We are fighting them every day on this. It’s absurd.” Read more

Ralph Atkins

The European Central Bank seems confident it will next week manage, without incident, the biggest ever repayment of liquidity in its 11-year history. A year ago it provided €442bn in one-year loans to 1,121 eurozone banks as part of its emergency measures to shore-up the financial system — the largest amount ever provided in a single ECB liquidity operation. On Thursday, all the money has to be repaid.

Earlier this year the worry was of tensions rising as the repayment deadline loomed. As part of its ‘exit strategy’, the ECB governing council, which met yesterday for a regular non-monetary policy meeting, dropped one-year liquidity offers.

A common assumption is that overnight market interest rates may still rise as the €442bn is repaid. But the euro’s monetary guardian has taken steps to smooth the process, and any impact on market interest rates could well be modest. On Wednesday, the ECB will meet in full banks’ demands for three month liquidity, and then on Thursday itself, the ECB will offer unlimited funds for six days, which will tide banks over to the following week’s regular offer of seven days funds. Read more

Ralph Atkins

Banks in Greece, Portugal, Ireland and Spain account for more than two-thirds of the increase in lending to eurozone financial institutions by the European Central Bank since the summer of 2008 as many struggle to access financial markets.

Banks in the four countries have borrowed €225bn (£185bn) of the €332bn increase in lending since June 2008, according to the Royal Bank of Scotland, which compiled the information from eurozone central banks (see table). This is 68 per cent of the rise in lending, yet these countries represent only 18 per cent of the eurozone’s gross domestic product. Read more

Simone Baribeau

The US will have one major advantage before it starts using its term deposit facility in earnest. It gets to see how effectively a similar facility mops up excess liquidity in Europe.

Tomorrow, the ECB will look to attract €35bn to be deposited for one week for an interest rate of up to 1 per cent. The move comes as the eurozone’s central bank looks to reduce the inflationary pressures that could be created by its recent bond purchases. Read more

Ralph Atkins

There was not a little theatre behind yesterday’s announcement by the European Central Bank concerning its government bond purchase scheme. First, was the surprise statement on how much it had bought – €16.5bn – which had not been expected until today. Then, there was the flourish with which it said it would immediately “sterilise” the extra liquidity injected by re-absorbing it into one-week deposits.

The view in the market was that the ECB operation was aimed to a large extent at simply addressing German worries about possible inflation risks. Julian Callow, European economist at Barclays Capital said: “This is window dressing to soothe the German audience. For example, the ECB’s covered bond purchases have been three times the size yet there were not any similar operations to sterilise the impact of those on banking sector reserves.” Read more

The ECB paid euros to receive dollars from the Fed, promising to reverse those transactions in eight days’ time. It is the first usage of the revived, crisis-era, swap facility from the Fed. The idea is to help European banks to access dollar funding more easily through the ECB.

The Bank of England, Bank of Japan, Bank of Canada and Swiss National Bank did not use the facility this week. Read more

Ralph Atkins

So, just like the US Federal Reserve and the Bank of England, the European Central Bank has bitten the bullet and launched an outright asset purchase scheme (it is called the Securities Market Programme). But the ECB is rejecting the idea that its buying up of government and private debt is ”quantitative easing”.

Why? First, on technical grounds, because the liquidity injected will be re-absorbed through other ECB operations. Second, because the programme is not intended to have the effects of classic “quantitative easing” — that is, to stimulate economic growth and inflation, or both. The ECB says the SMP’s objective “is to address the malfunctioning of securities markets and restore an appropriate monetary policy transmission mechanism”. It will be “intervening” in government bond markets, rather than buying to hold. Read more

James Politi

It is ironic that for all the talk of the Fed’s “exit strategy” from crisis-era policies, US officials were called together last night to reopen one of the main facilities of the meltdown.

Last night central banks announced they would start engaging in currency swaps again — a reminder of the continuing fragility of the global financial system. Read more

Robin Harding

The Bank of Japan moved to offer Y2,000bn ($21.6bn) in overnight liquidity on Friday to “increase markets’ sense of security” because of turmoil resulting from the debt crisis in Greece. It is the bank’s first exceptional offer of overnight funds since the scare over Dubai’s sovereign debt in December 2009 and its biggest since the height of the financial crisis in December 2008.

The move shows that fears about sovereign debt default in Europe are rippling across global markets, with the Bank of Japan the first central bank to react by adding liquidity. This, however, does not reflect any significant market disruption in Japan or any fears of contagion to Japan, despite its own debt woes. More on ft.com.

Few punters wanted today’s final unlimited three- and six- month debt offers from the ECB.

In the six-month auction, €17.9bn was allotted, against consensus expectations of about €70bn. Perhaps those expectations were just wrong: at the last six-month offering, the allotment was €1.7bn. The tenfold increase represented an increased number of bidders, and increased debt appetite from each bidder. The December auction had 21 banks bidding; this auction had 62. Read more

From Bloomberg:

The European Central Bank made its final offer of unlimited funds over six months as policymakers continue to withdraw the measures put in place to fight the financial crisis.

The ECB called for bids today in a tender where the rate paid will be indexed to the average of the ECB’s main rate over the life of the loans. It will announce the results tomorrow at around 11:15 am.

 Read more

Ralph Atkins

Know anybody who had to borrow €3bn suddenly over the weekend? A surge in overnight emergency lending by the European Central Bank has become a talking point in financial markets. Use of its marginal lending facility, which incurs a penal interest rate, jumped at the end of last week and stayed above €3bn on Monday or Tuesday. Was a eurozone bank in trouble? Or was the urgent need for extra liquidity just due to a technical hitch, perhaps related to the start of a new ECB monthly lending cycle?

In the event, it may have been more technicalities than trauma. Use of the facility slumped to just €52m overnight from Wednesday. Whoever need the money appears to have turned to the latest ECB regular weekly offer of liquidity instead, at which banks’ demands continue to be met in full. But minds are not totally at ease. “It’s difficult to say for sure whether this was a genuine funding issue for some banks or one particular bank, or just some adverse liquidity management,” says Nick Matthews, European economist at Royal Bank of Scotland. Read more

Banks are unable to lend as much as needed due to regulations on loan-to-deposit ratios, a senior banker said in Abu Dhabi yesterday. Banks need a liquidity injection from the central bank or a relaxation of the ratio requirement.

“The Central Bank has guaranteed all deposits,” Abu Dhabi Islamic Bank CEO Tirad Mahmoud told Gulf News. “So why do we pay 4 per cent [on deposits]: because we have to in order to meet the regulatory requirement.” Read more

The People’s Bank of China has raised the yield on 20 billion yuan ($2.9 billion) of one-year bills by about 8 basis points (bps) to 1.8434 per cent after holding it steady in the previous 20 auctions, compared with a median forecast among traders that it would go up by just 4 bps. It also drained a record 200 billion yuan via 28-day bond repurchase agreements, ensuring it will draw net funds from the market this week.

Last week the Chinese central bank surprised the market by pushing up the yield on its 3-month bills by about 4 bps to 1.3684 per cent, sending stocks and commodities lower on worries about tougher “fine-tuning” of monetary policy.

The banks in the United Arab Emirates do not have any liquidity problems, but enjoy high liquidity and are not in need of additional support, the central bank governor said on Wednesday.

In remarks made on the sidelines of an opening ceremony of the Sharjah Islamic Bank’s new headquarters, Al Suwaidi also said the global economic crisis has stabilized to some extent, which reflected positively on the UAE, according to the official news agency WAM. “The economic growth in the UAE will not be enormous in the coming period and we will not have to talk about inflation as its rate will be very low,” he added. Read more

The Chinese central bank has said that mainly focusing on inflation is not enough. “China’s monetary policies are aimed at achieving multiple goals, rather than just a solitary effort to control inflation,” said governor Zhou Xiaochuan. Other goals include ensuring economic growth, keeping a relatively high employment rate, and securing the international balance of payments, he said.

The People’s Bank of China says it will target “moderate” loan growth this year, in contrast to the extremely sharp expansion of credit last year. Loan issuance to industries facing overcapacity must be strictly controlled to avoid credit risks, governor Zhou saidRead more