ANALYSIS: EUROZONE DEBT ‘RELIEF’ IS ENTIRELY MISPLACED.

The Slog digs deeper than most into what those ECB bank-lending figures really mean.

Following yesterday’s global doom in relation to eurozone lending constipation and a potential slowdown in China, it’s interesting to note the unvarnished relief that has greeted the EU Central Bank (ECB) announcement today that it is only renewing €132bn of loans to EU banking organisations.

The Slog thinks a more accurate perspective is required here.

The ECB confirmed to the Slog today that it is currently lending close to €900bn (£728bn) to eurozone commercial banks. This remains at near-record levels since the bank’s creation in 1999.

Out of those, 1 in 7 (and that’s a lot of banks) needs the 3-month rollover loan at 1% (above market rates) and has opted to take it. This is the figure that comes to €132bn, in the LTRO column in the ECB’s accounts.

This column was created solely because of what I call ‘the Eurobanks’ liquidity mistrust’ crisis. This is the same one requiring the ECB to act as, single-handed, the replacement for what in a healthy system would be called the Interbank Lending Sector.

What most media commentators missed out was the fact that the ECB’s normal bank-lending operations column (the MRO) also has a rather large outstanding amount in it – €163bn. These loans are not over three months, but seven days.

As this is also being offered at 1%, if you wanted to keep the markets calm, this would be a good place to stick some banking borrowers….as it costs them no more apart from more admin charges. It would also be a good place for banks themselves to hide from the glare of anxious investors – so one could say, “Ah, but we aren’t part of the €132bn loan-renewals”.

This was the response The Slog got from the ECB on pointing this out:

“Well, now you are straying into those areas where we prefer for other observers to make their own judgements”.

So, no denial then. And if this were the case, then the real proportion of banks choosing loan rollover is closer to 1 in 3….a very disturbing number indeed.

Now we should look at the other LTRO column beyond the immediate cases of those needing to renew right away. The banks six months out from needing to renew have borrowed €50bn. In turn, the banks 30 days and 91 days away from renewal come to a further €50bn.

So the total now is €345bn of medium-term refinancing…or 43% of total Eurobank lending by the ECB. Perilously close to 1 in 2.

Now, some of you may have spotted that total lending on MRO and LTRO reaches €550bn – leaving €450bn of lending that doesn’t come under any of these categories. What if you wanted to hide your problems in one of those off-piste places? The answer we got was identical to the one we got to the first question noted earlier.

I’m a glass half-empty sort of person. But if you’re entirely reassured by these ‘better than expected’ ECB loan figures, then you’re a quart into a pint pot sort of person.

The EU’s financial systems, for me, stay right where they were yesterday – in intensive care.

5 thoughts on “ANALYSIS: EUROZONE DEBT ‘RELIEF’ IS ENTIRELY MISPLACED.

  1. In today's time home values have depreciated so significantly that the latest Obama mortgage plan enables borrowers to refinance their mortgage up to 125% of the property's present value. The 125 loan plan aims to refinance borrowers into lower mortgage payments.

  2. As my thesis is that nobody really knows what they are doing and have little idea of exactly why, it may be that I am more right than wrong. This might be because I know even less than anyone else and therefore am better positioned to judge.

  3. Hey Demetrius, your thesis sounds dangerously similar to Kartik Athreya's 4 page offering that's being resoundly denounced in the blogosphere:-)Personally, I find it's comedic honesty, refreshingly reassuring. Dave O'Carroll Romford

  4. Day trading is referred to the practice of buying and selling financial instruments within the same trading day such that all positions are usually closed before the market close for the trading day.

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