Central Banks

Markets might yawn at second ECB cheap-money fix

28 Feb 2012

The ECB’s first three-year liquidity facility in December sparked a rally across markets. The second may not have the same impact. Those hoping for a massive injection of cheap money may be disappointed. And expectations of further ECB long-dated funds look premature, at least for now.

ECB Greek loss dodge heralds end of bond buying

17 Feb 2012

The ECB will avoid losses on Greek bonds through a legal manoeuvre. Such special treatment will not please the bondholders asked to take losses on their Greek debt. That’s bad for other countries whose debt the ECB owns. And it will make bond buying difficult in the future.

Bank of Japan fights against irrelevance

14 Feb 2012

An extra 10 trillion yen of quantitative easing won’t change much and the new 1 pct inflation target is little more than wishful thinking. In a country with a shrinking population and a government deficit of 9 pct of GDP, a responsible central bank can be only a secondary player.

ECB’s adrenaline fix has dark side for banks

13 Feb 2012

Cheap three-year loans have prevented bank failures and lifted markets. But the broader economic benefits are uncertain, stopping the medication will be hard and the longer the ECB keeps its dominant role in the system, the less banks look like private sector institutions.

Draghi shows vigour with Ackermann slapdown

10 Feb 2012

The ECB chief has lampooned “statements of virility” from bankers – like the Deutsche Bank head – who reject cheap liquidity. Draghi is right that lenders’ health rests on the strength of their host nation. It’s also a warning to others tempted to question the central bank.

ECB’s new funding tool reveals bank pain hierarchy

9 Feb 2012

The central bank is loosening its collateral rules for banks, but just seven euro zone countries have been given the green light to participate. That allows the ECB to aim its three-year loans where they’re needed most. But it also shows which banking systems are most stressed.

Japan’s bluster can’t sink the irrepressible yen

2 Feb 2012

Officials want the central bank to print yen to stop its climb to help exporters. They shouldn’t hold their breath. The Bank of Japan may oblige for long enough to cool the currency’s rise, but an ageing population and massive debts mean fighting for a weaker yen is a losing battle.

Fed doubles risk of being whipsawed by market

25 Jan 2012

By extending its zero-rate commitment from about 18 months to three years the U.S. central bank has doubled the risk that markets may surprise it. Job creation, Bernanke’s departure or inflation could force a damaging reversal - or lead the Fed to drag its feet to avoid one.

Alluring subprime debt can still poison investors

19 Jan 2012

Credit Suisse, Goldman Sachs and other banks reckon there’s life yet in the mortgage market’s toxic waste. Double-digit yields, after all, are hard to ignore. But subprime sludge still has the ability to slip buyers up. Investors should tread carefully.

Sale of Lehman dregs shows risks of ECB largesse

19 Jan 2012

Three years after Lehman’s collapse, the Bundesbank is selling 2 bln euros of risky debt it was stuck with when the U.S. bank failed. The euro zone’s central banks are now lending far more to banks, and loosening lending terms. The sale is a timely reminder of the risks involved.

Fed profit shows it’s in the market but not of it

11 Jan 2012

The U.S. central bank is handing the Treasury $77 bln of its 2011 profit, a hair under the 2010 record. That’s three-quarters of what all the nation’s commercial banks collectively make in a year. It’s a reminder that the Fed plays big these days - but by different rules.

ECB will find it hard to avoid pain on Greek debt

10 Jan 2012

The central bank’s refusal to participate in the Greek debt restructuring becomes harder to sustain as Athens threatens to become more coercive. And any attempt to spare the ECB losses will make it look as if it enjoys implicit seniority, pushing sovereign yields even higher.

Hungary’s choice: disaster or surrender

10 Jan 2012

Budapest needs financial aid from the IMF and EU after its populist policies scared away investors. A swift deal would calm fears of contagion to Austria and central Europe. But international lenders can only agree if the government repeals its most outrageous reforms.

Hildebrand shows stark exposure of central bankers

9 Jan 2012

The Swiss National Bank chief has been forced out after his wife engaged in ill-advised currency trades. Hildebrand’s policies made him a political target. It’s a reminder to central bankers around the world that, to retain their independence, they have to be whiter than white.

Currency deals put Swiss central bank on the spot

5 Jan 2012

SNB chairman Philipp Hildebrand’s wife swapped 400,000 Swiss francs for dollars weeks before the currency was pegged to the euro at a lower rate. The bank doesn’t see anything wrong with this. But the affair leaves a bad taste, and will embolden the SNB’s critics.

Federal Reserve sets itself up for a messy exit

3 Jan 2012

The U.S. central bank’s decision to forecast overnight interest rates has little downside in the short term. An implicit target should keep rates low and dependable. But it will tie the Fed’s hands tightly, something it could regret when the economy forces a change in course.

Rome’s funding pain eases, but is not cured

28 Dec 2011

Italy’s funding costs halved in auctions on Dec. 28, as its bond market started to behave a bit more normally. Cheap ECB funds may have helped, as well as Rome’s new commitment to austerity. But while Italy has taken one step back from the abyss, it still faces huge hurdles.

Bini Smaghi’s ambiguity advice is welcome

23 Dec 2011

The departing ECB board member says there should be no theological hang-up about quantitative easing, but insists that the institution should stick to “constructive ambiguity”. This is a welcome reminder that absolute transparency isn’t a must for a central bank.

ECB liquidity orgy heralds two-tier banking system

21 Dec 2011

The European Central Bank’s 489 billion euros of cheap three-year liquidity means EU banks can avert a short-term crunch. But the non-users will gain in the long term. Even if lenders don’t engage in a huge carry trade, private sources of funding could stay away for a while.

Europe’s ELAstic money: a guide for the perplexed

16 Dec 2011

Banks in Ireland, Greece and elsewhere are receiving life support from their local central banks in addition to loans from the ECB. This emergency liquidity assistance is cloaked in secrecy, but poses risks for the euro zone. Breakingviews explains what is going on.