800 banks applied to the European Central Bank for €529.5 billion ($712.5 billion) in cheap funding this morning in the second and final three-year long-term refinancing operation—the second chance for banks to get lots of central bank funding on the cheap.
While analysts had been guessing
and second guessing the size of the take-up, the diversity of opinions ahead of
the allotment (for instance, Morgan
Stanley narrowed estimates down to a broad €250-600 billion)
indicated that no one had any clue what banks were going to do.
A couple points to keep in mind in the fallout of the LTRO:-
Only in this LTRO did the ECB relax collateral requirements for
Irish, Spanish, French, Italian, Cypriot, Austrian and Portuguese
banks. The national central banks of these countries will bear any
losses from these higher risk assets.
-
Comments from members of the ECB have indicated that there won't be another LTRO—at least not anytime soon. While Bank President Mario Draghi has already proved far more activist than his predecessor Jean-Claude Trichet, he seems to recognize that market pressure has forced EU leaders to make difficult decisions, and that completely alleviating fears on banks and sovereign borrowing costs will likely lead to nothing.
-
Worries that the ECB's own balance sheet is at risk are probably unfounded. First, there's a huge distinction between the Eurosystem—the ECB and the National Central Banks—and the central bank itself, with the NCBs holding most of the nominal risk. Beyond that, the ECB doesn't feel losses like a commercial bank and is not subject to the same stipulations. From Citi's Willem Buiter:
- The ECB is not subject to either regulatory capital requirements or national or international accounting rules (statutory or otherwise). That means that the ECB could choose to realize losses and potentially run with negative regulatory equity should the losses exceed its on-balance sheet loss absorption capacity. Or the ECB could choose to ‘evergreen’ its exposure indefinitely, for example, by recording assets at purchase prices even if these assets are non-performing or in default.
-
Nor will losses on holdings of securities necessarily mean that the
ECB will be forced to print money. Again from Buiter:
- The total non-inflationary loss absorption capacity (NILAC) of the ECB is very large – we provide estimates that put it at €3.4trn...We do not consider ECB default and hyperinflation in the euro area to be material risks.
-
The take-up was large, but there are still lots of risks. An
extraordinarily high or low take-up would have been a surprise—think €1 trillion
or €200 billion, respectively—but that's just not what happened. This suggests
that banks are taking the opportunity to get cheap funding, but that they're
still too wary about economic conditions in Europe to take on too many
liabilities.
- The biggest news from this LTRO is probably that the reaction from investors has been very blase. €529.5 is a great number, but it's hardly overwhelming. European markets have moved very little in response, and the EUR/USD has dropped slightly since the announcement.
Now that the LTRO is over, focus will probably return to political
dealings in Europe. Taking the cake will be discussions about expanding the size
of the European Stability Mechanism—the permanent European bailout fund set to
go into effect this summer–from its current €500 billion. Per usual, Germany is
vehemently denying that this is necessary, however this issue is likely to
dominate the EU summit that starts tomorrow.
没有评论:
发表评论