Fresh from the European Central Bank on Friday morning, some clues to the mystery of Thursday’s €15.8bn ‘fat finger’ tapping of eurozone liquidity.
Headlines off of Bloomberg:
*ECB SAYS BANKS BORROWED EU16.0 BLN AT MARGINAL RATE
*ECB SAYS BANKS DEPOSITED EU18.8 BLN WITH IT OVERNIGHT
Bank of America Merrill Lynch rates analysts Ralf Preusser and Max Leung suggested on Thursday that if the jump was caused by a fat finger (literally, someone at a eurozone bank typing in €1.75bn instead of €17.5bn at the ECB’s Main Refinancing Operations [MRO] earlier this week) then we would see around €15bn borrowed again last night and repeated until the next ECB MRO on February 22.
Meanwhile, Barclays Capital’s Laurent Fransolet writes on Friday that:
Borrowing at the Marginal Lending Facilities remained elevated (+€16bn) as we expected. In our view, it will remain at around this level until next Tuesday or Wednesday, when it is either rolled back into MRO/3m LTRO (which would then suggest a mistake) or disappears (which would then suggest a move of the borrowing to [Emergency Liquidity Assistance] ELA. We guess first indication will come from the Autonomous Factors forecast from the ECB on Monday afternoon (indeed, an increase in ELA implies a decline in autonomous factors, as we explain in our piece “ECB: Liquidity, ELA and addicted banks”).
So either way, all will be revealed by Wednesday next week.
In the meantime though, we’ve heard a related theory going around the analyst community — one that has to do with those squirrely Irish banks and the ELA.
The €15.8bn spike might be down to an Irish bank moving most of its so-called OMO borrowings — that’s borrowing from the ECB’s open market operations — to the ECB’s marginal lending facility in preparation for the stuff being moved to non-ECB open market operations borrowing in a few days. In other words, the ELA.
Why would banks choose to do it in that way?
Using the ECB’s marginal lending facility instead of the MRO (which, it’s worth noting, did decline unexpectedly this week) doesn’t change the eurozone liquidity surplus and things like Eonia at all, we hear, but works as a way to flag that something might be moving. If there are shifts between using ECB liquidity like MROs and Long-Term Refinancing Operations (LTROs) to the ELA, and these are not flagged, then the liquidity surplus and money markets would probably have been impacted.
Get it? It could be a quiet move to non-ECB, or ELA, borrowings for Ireland’s bank(s). Who knows why, though we’d add the move could prove prudent should the ECB ever decide to move from full allotment at its LTROS to more limited funding.
And it’s just a theory — but expect us to revisit it next week.
Related links:
‘Fat finger’ blamed for ECB loans leap – FT
The eurozone’s €15.8bn fat finger? - FT Alphaville
Where did Ireland’s secret liquidity go? - FT Alphaville