Liquidity still a problem after ECB cash injection |
| Financial Times - Mar 19, 2012 |
Fear and fatigue have been replaced by cautious optimism. The European Central Bank’s €1tn injection in to the eurozone financial system has smoothed funding worries for many of the region’s banks. But even as banks and investors bask in this year’s markets rally, questions are being raised over the side effects of the ECB’s medicine.
While Mario Draghi’s offer of cheap, three-year money under the ECB’s longer-term refinancing operations (LTRO) in December and February has temporarily fixed the liquidity issue in the European financial system, some analysts are concerned by the way banks are tying up assets to access the ECB money, or “encumbering” their balance sheets.
To access the ECB’s loan facility, lenders have had to pledge more of their assets at a time when the proportion of collateral being pledged by banks in so-called collateral swaps, covered bonds – a form of ultra-safe debt – and repo transactions has already risen significantly.
The LTRO has provided a short-term fix for Europe’s banks. But, say analysts, it could ultimately make it more expensive for them to fund themselves, encouraging them to cut lending and shrink, hardly a recipe for emerging from the debt crisis.
Read Full Article from Financial Times
- Posted: 2012-03-19 12:58:10
| More Stock Investor Place Top Stories |
 |
|
|
|
| Stock Investor Place Top Stories Archive |
|
|
|
