Central Banks

ECB gives EU banks short-term gain, long-term pain

15 Dec 2011

Stretching the central bank’s liquidity facilities to three years reduces the risk that banks will collapse or rapidly shrink their balance sheets. But the real prize is to encourage private investors to buy bank debt again. The ECB’s largesse actually makes this less likely.

Fed shows outsized concern for too-small-to-fail

14 Dec 2011

The U.S. central bank spent nearly two years scrutinizing the tiny takeover of a Utah lender by prepaid debit card firm Green Dot. The soundness of even niche banks matters. But in the too-big-to-fail era, the Fed’s slow process is an unneeded deterrent to the sector’s small fry.

UK’s euro isolation may backfire on City of London

9 Dec 2011

David Cameron says he was defending Britain’s financial industry when he opted out of the pan-European deal to save the euro zone. But the prime minister’s stand leaves the City exposed in Europe - and at home. And it further diminishes the UK influence over designing new rules.

Sarkozy courts danger with ECB-bank-sovereign plan

9 Dec 2011

The French president says banks will use cheap ECB funds to pile into sovereign debt. That would be convenient for stressed governments, but tough on banks. And any hint of compulsion would scare investors. Still, political arm-twisting may make it hard for some banks to say no.

Draghi pours cold water on euro zone grand bargain

8 Dec 2011

The European Central Bank has cut interest rates and taken steps to help banks in order to fend off a looming recession. But by insisting on the “spirit” of the EU’s founding treaties, its president has signalled that governments can’t count on him to be the euro zone’s saviour.

Fed needs better PR on last-resort lending, too

7 Dec 2011

The U.S. central bank is working on its monetary policy communications. But its key role as a crisis lender is also in the spotlight over a $7.8 trln number that has been mischaracterized by some news outlets. The Fed would get less flak if it managed this message better as well.

UK banks need government to solve funding squeeze

6 Dec 2011

The Bank of England’s new 30-day facility should help keep lenders afloat if the euro crisis causes short-term liquidity to dry up. But banks also need help refinancing 140 billion pounds of term debt in 2012. For that, the state may need to guarantee their debt once more.

ECB bazooka may be short on credibility ammo

5 Dec 2011

Markets are rallying on hopes that the ECB will ramp up its purchases of euro zone government debt. To be successful, the intervention will need to put a ceiling on yields, and enjoy political support. The danger is that investors view ECB buying as another opportunity to sell.

Euro IMF scheme raises four questions

1 Dec 2011

The latest wheeze for solving the crisis is for national central banks to lend money to the IMF which will then pass it to Italy and possibly Spain. But how much money will be available, who will provide it, where will they get it or who will bear the risk?

Poland fears euro death and mulls euro membership

1 Dec 2011

Poland is calling on Germany and the ECB to prevent a euro collapse that would be devastating for it and central Europe as a whole. But while fearing the euro’s demise Poland remains drawn to joining the single currency. The case for staying out is stronger.

Central banks take on market fears

30 Nov 2011

A six-nation coordinated move to make cheaper dollars available globally seems aimed initially at European banks. Like it or not, it shows a willingness to do what private investors won’t. If politicians show similar unity, they could win the standoff with markets over the euro.

ECB funding aid needs to be wider, not just longer

25 Nov 2011

The central bank is considering offering longer-term loans to the euro zone’s stricken lenders. Bankers also want it to broaden the pool of collateral it will lend against. Though the ECB will not want to get swamped, easing some rules might help prevent small banks going bust.

U.S. lawmakers squandering gift from markets

21 Nov 2011

Global investors have given Congress lots of rope to rein in long-term deficits before they enter crisis mode. The committee charged with the task failed to make any progress. So far, markets are enabling such inaction. Washington, and the world, won’t always be so lucky.

IMF could unlock ECB’s war chest

21 Nov 2011

The European Central Bank is reluctant to fund euro zone governments for fear of breaking its own rules and EU treaties. But the law could allow it to channel cash via the International Monetary Fund. That may sound dodgy, but could be a safer way for the ECB to fire its bazooka.

What’s stopping the ECB firing its bazooka?

17 Nov 2011

The central bank is facing mounting pressure from around the world to act more freely as a lender of last resort to euro zone governments. The ECB has been reluctant to move. But even though it is hemmed in by law, ideology and past positions, it does have wiggle room.

Not saving Italy works best for ECB

15 Nov 2011

The central bank could easily keep Italy afloat. Printing money on the Bank of England’s scale would fund the government for all of 2012. But playing tough suits the ECB. Berlusconi is out and the chances for serious reform are better. Still, the pressure to print won’t go away.

Euro zone should prepare post-Berlusconi bazooka

8 Nov 2011

Germany and the ECB have been right to keep Italy on tenterhooks so long as it had a delinquent government. But even a credible new government will probably need help to get its borrowing costs under control. That means unleashing the central bank’s firepower in one form or other.

Bank of England reaches limits of independence

8 Nov 2011

UK parliamentarians have called for the central bank to be better governed and more accountable. Keeping the government at arm’s length is important. But the Bank of England’s new powers for financial stability and bank supervision make greater political scrutiny inevitable.

Fed might actually need maligned savers

7 Nov 2011

Ben Bernanke said last week that low interest rates, which penalize savers, served the greater good of economic growth. But high savings rates correlate with growth over both the long and short term. Bernanke’s discouragement of prudence could yet stymie his objective.

Draghi-led ECB keeps Greece at arm’s length

3 Nov 2011

The bank’s new president jolted markets with a surprise cut in interest rates while his benign tone on the Greek crisis implied that he thinks that is an issue for governments to resolve. It’s hard to believe the ECB isn’t concerned. But the aloof approach may pay off.