This is one way to respond to the mess Euroland is in over who should make the calls for recapitalising banks…
The European Banking Authority is delaying its next banking stress test to 2014, to wait for both new asset-quality reviews and the ECB’s Single Supervisory Mechanism (so is it to wait for Wolfgang Schaeuble?): Read more
Consider this chart from JP Morgan’s Flows & Liquidity team. It shows the evolution of non-performing loan ratios (as percentages of total loans) across three different Euro area blocks: Germany, core and periphery.
The definition of a non-performing loan (NPL) differs across countries but the picture is definitely not pretty. Read more
Back in July, 2012 the Danish central bank, Nationalbanken, lowered the deposit rate to -0.2 per cent. Back then we wrote that it was going to be costly for the banks, and that money market rates were going deeper into negative territory. With Draghi’s comments last week, how did that whole negative deposit rate action turn out for Denmark?
Nordea had a note out last week on that very subject. Now, before we move, let’s remember that Danish monetary policy is tailored around the FX peg. The deposit rate was there to assure outflow because of mounting pressure on the EUR/DKK pair. Read more
The chart above shows the decline in Spanish bond yields “occurring at a time that Spain has announced that it had not hit its deficit targets and would not hit next year’s,” as David Watts of CreditSights points out. Read more
From Reuters:
LONDON, May 3 (Reuters) 13.04 – The euro pared gains while German Bund futures edged up on Friday after European Central Bank policymaker Ewald Nowotny said the central bank was open-minded about taking deposit rates into negative territory.
Nowotny said he was “astonished” by the market’s reaction to his comments earlier in the day, when he said negative deposit rates were not relevant in the near term.
(With some header credit due to Mark Dow)
He came, he cut, he stuck a load of fingers in the air…
The tl;dr version of May’s Draghi presser involved the ECB chief mentioning a heap of possible actions — from getting the “dead” ABS market going to help SMEs, through to negative interest rates, while giving a little bit of forward guidance on policy — but without committing to anything concrete. Read more
Ahead of the Thursday meeting, a chart via Gavyn Davies (full post recommended, of course): Read more
Eurozone M3 data are out…
That’s the annual growth rate of the euro-zone broad money supply (M3) falling from 3.1 per cent to a well below expectations 2.6 per cent in March and allowing a quick segue into a good news/ bad news post ahead of next week’s ECB meeting and increasingly probable cut. Read more
Your mission, should you choose to accept it, is to collect seven briefing documents for a meeting of the ECB’s Governing Council. As always, should you or any of your colleagues be caught or killed, FT Alphaville will disavow any knowledge of your actions. This blog post will destruct if our servers go down. Good luck, dear readers. Read more
First some charts from Barclays:
Starring A. European Banker as the Cookie Monster and Mario Draghi as Ernie:
The ECB’s role in this eurozone crisis/saga has been complex.
Yes, yay for Draghi with the OMT/whatever it takes and before that, the LTROs.
But there’s a couple of other niggles that have been highlighted, yet again, by the Cyprus ‘bail-out’. Read more
Paul Krugman thinks the Cyprus bailout is all about the Russians.
As he noted in his New York Times blog:
You can sort of see why they’re doing this: Cyprus is a money haven, especially for the assets of Russian beeznessmen; this means that it has a hugely oversized banking sector (think Iceland) and that a haircut-free bailout would be seen as a bailout, not just of Cyprus, but of Russians of, let’s say, uncertain probity and moral character. (I think it’s interesting that Mohamed El-Erian manages to write about this thing, fairly reasonably, without so much as mentioning the Russian thing.)
Mario’s presentation to EU leaders from Thursday night. Msg: ‘Mind the gap’…
M. found himself waiting for Draghi surrounded by fellow journalists. He passed on a short piece of the conversation (we’ve protected the imaginary sources, naturally):
But we do often speak about the OMT, which I’ve never seen; you know D. doesn’t like me and never let me look at it, still its appearance is well known in the ECB, some people have seen it, everybody has heard of it, and out of glimpses and rumours and through various distorting factors an image of the OMT has been constructed which is certainly true in fundamentals. But only in fundamentals. In detail it fluctuates, and yet perhaps not so much as the OMT’s reality.
Like Top Trumps, just not as much fun…
Click to enlarge — details (finally) of the sovereign bonds held by the European Central Bank’s inactive Securities Markets Programme, released on Thursday: Read more
Eurobank recently lowered the over-collateralisation (OC) of its second covered bond programme to the bare minimum allowed by Greece’s covered bond law. Avid covered bond-watchers (there must be a handful of you out there) will know of course, that specially designed legal frameworks are one of the big perks of the covered bond structure – along with juicy benefits like an overstuffing of assets and the dual recourse nature of the centuries-old debt instruments. Read more
Yes the IMF calls for common eurozone deposit insurance, in this new banking union paper. But also look at what they suggest on emergency liquidity assistance:
Lender of last resort. The lender of last resort makes liquidity support available to solvent yet illiquid banks. Centralizing all LOLR functions at the ECB would in the steady state eliminate bank-sovereign linkages present in the current ELA scheme (see Box 1). This would require changes to the ECB’s collateral policy, as by definition euro area banks that tap ELA cannot access Eurosystem liquidity owing to collateral constraints. Until such time as all banks are brought under the ECB’s supervisory oversight, ELA would be sourced through both the ECB (for banks brought under its purview) as well as national central banks (for banks that remain under national supervision, albeit with adjustments made to the national ELA limits).
Which would be nothing short of a revolution. Read more
Little or none seems to be the answer…
I wrote on Monday about the ECB’s options for expanding its balance sheet but skimmed over the idea of direct FX intervention on the presumption it just wasn’t going to happen and the ECB would push via less obvious channels. As I was (justifiably) rebuked, the aim here is to make quick amends. Read more
Mario Draghi talked, everyone was a little confused, a little wary… so the euro fell. He OMT’ed the FX market. Clever.
But what if talking isn’t enough? As Capital Economics argue, the power of talk is diminished when others are taking action: Read more
Reuters flashes hitting now (we note):
07-Feb-2013 14:56 IRISH PM SAYS 20 BLN EUROS REDUCTION IN NTMA MARKET BORROWING REQUIREMENT OVER THE NEXT DECADE
07-Feb-2013 14:53 – IRISH PM SAYS IRELAND HAS REACHED CONCLUSION WITH ECB TO PUT IN PLACE MORE SUSTAINABLE PROMISSORY NOTE AGREEMENT
Draghi follows Mark Carney onto the stage… Read more
Click for the feed from the Irish parliament, where legislators have until the morning to pass an emergency bill liquidating Anglo Irish’s resolution company, unlocking a promissory note deal which might be on its way, before creditors of Anglo hit the LITIGATE button. Or something. (The entire prom note deal is needed by the Irish government before the notes’ next circa €3bn interest payment, because that’s what they promised the public.) Read more
*NOONAN SAID TO PLAN ANGLO IRISH SPEECH IN PARLIAMENT
A few hours later… Read more
LTRO-porn continues… this time it’s semi-core.
As we noted before, the higher than expected repayments by banks of the Long Term Refinancing Operations to the ECB might also push up the amount of paper in circulation as collateral which was tied up in carry trades is returned to banks. That would put pressure on markets which benefitted from the LTRO cash.
What we didn’t think of was Belgium. Poor thing. Read more
You gotta roll with fashion:
Are you a bank agonising over whether to keep your triple A-rated covered bonds as part of your liquidity buffer or send them to the European Central Bank? Not sure what to do with your AA-rated non-financial euro corporate debt?
Then you need this handy table from BofAML’s structured finance guru, Alexander Batchvarov. Read more
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2The end of QE?
3The persistent supply-side constraints in US housing
4Bird, plane, Abe
5Bove vs Bloomberg, redux
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9The short arm of the SEC
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