Central Banks

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.

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.