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A critique of the ECB's liquidity policies | 66 comments (66 topical, editorial, 0 hidden)
Re: A critique of the ECB's liquidity policies (none / 1)
Now, would you describe this as "no signs of stress in the interbank market"?

Irish Banks Behind ECB Lending Surge - WSJ.com

The ECB's disclosure late last week that it had lent around €16 billion, or $21.90 billion--the highest levels since June 2009--under its emergency marginal lending facility left many financial-market participants searching for the cause.

...

The overnight facility used by the Irish banks carries a 1.75% interest rate. Irish banks are the euro bloc's heaviest users of the ECB's regular lending facilities, borrowing €126 billion in January, according to data from the Irish central bank. Some traders and analysts had speculated that the spike in ECB funding may have been caused by a liquidity crisis at a euro-zone bank.

Though the unexpected overnight-lending spike caught investors' attention last week, it didn't have much of an effect on bond yields or the euro because analysts didn't see evidence of broader stress in the banking system or short-term money markets.

It appears the analysts have a memory extending back only 24 hours. Over that time frame, yes, EONIA didn't show any signs of stress.

To be fair, my own view about the Irish MLF spike was that there was actually no cause for alarm since the banks responsible were already being restructured. But how you can claim that there are no signs of anything amiss in the interbank market escapes me. Last week's episode was simply due to Anglo Irish Bank and Irish Nationwide Building Society releasing some assets from being held as weekly collateral for the ECB's Main Refinancing Operations to being held as daily collateral for the MLF. This was done in preparation for a sale of €15bn-worth of deposits as part of the wind-down of the two banks.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Carrie (migeru at eurotrib dot com) on Thu Feb 24th, 2011 at 09:09:58 AM EST
[ Parent ]
"Abundant liquidity" (4.00 / 2)
Apparently no worries in this Tuesday 22 Feb report, with a contribution from an analyst we've see upthread:

MONEY MARKETS-LIQUIDITY PICTURE INCOMPLETE | Reuters

Banks opted to reduce their borrowing from the ECB at the central bank's seven-day tender, draining 17.5 billion euros. But markets awaited the results of tomorrow's three-month loan offering before changing their outlook on liquidity conditions.

The overnight interbank rate EONIA= -- which typically rises as excess liquidity dwindles -- was expected to continue its downward trend during the current maintenance period.

"Even if (ECB borrowing) would have fallen further I think the liquidity situation is abundant," said Commerzbank rate strategist Christoph Rieger. "Given that tomorrow we will have another 3-month LTRO with only 38 billion expiring ... I don't think overnight rates will increase on the back of these results.

Longer-term ECB loans worth 38 billion euros are due to expire this week, while banks have the opportunity to borrow as much as they need at a three-month tender on Wednesday.

Analysts said that with recent money market conditions proving volatile, the ability to lock in funding for longer duration at a stable rate had become more attractive and increased demand should see liquidity pumped back in to the system.

"tomorrow's three-month loan offering", which was yesterday, was fully taken up at €119.5bn.

"expected to continue its downward trend" - in fact EONIA went up again, from 0.497% on the 21st, to 0.531% on the 22nd, to 0.661% yesterday. Though that may only be an uptick.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Feb 24th, 2011 at 10:10:49 AM EST
[ Parent ]
Re: "Abundant liquidity" (none / 1)
afew:
The overnight interbank rate EONIA= -- which typically rises as excess liquidity dwindles -- was expected to continue its downward trend during the current maintenance period.
Right, the maintenance periods are likely responsible for the heartbeat pattern. See ECB: Publication of the indicative calendars for the reserve maintenance periods in 2010 and 2011
The European Central Bank (ECB) is today publishing indicative calendars for the Eurosystem's reserve maintenance periods in 2010 and 2011. For the first time, these calendars are being published for the next two years, thereby following the practice adopted in setting the schedules for the meetings of the Governing Council of the ECB.


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Carrie (migeru at eurotrib dot com) on Thu Feb 24th, 2011 at 11:31:18 AM EST
[ Parent ]

A critique of the ECB's liquidity policies | 66 comments (66 topical, 0 editorial, 0 hidden)
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