A datapoint in the (now age-old) story of eurozone bank reliance on the ECB.
CreditSights have on Friday estimated that banks from peripheral members — Greece, Ireland, Portugal and Spain — have tapped a whopping 93 per cent of net liquidity from the eurozone’s various central banks, and the European Central Bank. In other words, stripping out banks in countries — such as Austria, Finland and Germany — that are net placers of deposits with the eurosystem. Which would leave just 7 per cent of net current liquidity going to those stronger countries.
The two-tiered state of European funding in CreditSights pics below:
The ECB is now caught in that tight spot. It wants to end its slow-drip (or should that be rushing gusher?) of eurozone liquidity. But it cannot do so without hurting those weaker states. Indeed, talk of an ECB exit was probably one of the things that helped contribute to recent Irish turmoil. Fast forward then, to late November and …
… as CreditSights’ bank analysts, including John Raymond, put it:
Trichet repeated his view that the ECB does not need to end liquidity injections before it can act on interest rates if it feels inflationary pressures are building. This reassures us that the liquidity provided by the ECB should continue in the near term. But Stark’s comments illustrate that other ECB board members’ patience is finite. Indeed, one of the factors that pushed Ireland into bail-out discussions is reportedly that the ECB was becoming concerned about the Irish banks’ disproportionate reliance on ECB funding, especially given the outflow of corporate deposits in the third quarter. While we do not think the ECB can realistically remove unlimited allocations on refinancing operations in the immediate future, we believe there will be further attempts to reduce its role as primary lender to the periphery next year. Assuming Portugal and Spain are not also by then already dependent on the EU for their funding requirements, that could provide a catalyst for another round of sovereign dominos. And as we argued [before], once taxpayer money is being used to repay large amounts of debt to Greek, Irish, Portugese and Spanish bondholders, then the politics will change. If Spain or Italy turns to the EU/IMF for support, then we believe momentum behind restructuring will build.
In short — less liquidity, more haircuts.
Bund-watching – FT Alphaville
In a rush for European funding? – FT Alphaville
The ECB exit hurts — hurts like negative €12.6bn – FT Alphaville
Rethinking the ECB exit – yet again – FT Alphaville