http://openeuropeblog.blogspot.com/2012/04/ecb-loads-up-on-piigs-exposure.html
( Finland got alleged collateral from Greece - they better get started on collateral from Spain and Italy though )
This gives the ECB a massive leverage ratio 38.4:1. This in itself is not the issue, more concerning is the fact that a third of the ECB’s balance sheet now resides in the PIIGS.
On top of this, while the ECB’s exposure has been rising the quality of collateral supporting this exposure has been deteriorating quickly. There are a few factors underlying this:
The real question which should be asked in all this is: how has the eurozone crisis continued to worsen despite the ECB more than doubling the money it has poured into these states?
Patently, the current approach to the eurozone crisis has failed. Even the ECB’s massive interventions only bought a short amount of time (and a lot less than many may have expected). The eurozone continues to fiddle at the edges of the crisis. All the talk of ECB lending, eurozone firewalls, IMF resources and austerity programmes fails to accept some of the fundamental flaws which underpin this crisis.
The eurozone needs to accept that there are a few structural flaws underpinning the eurozone crisis and move to correct them, not least: an endemic lack of competitiveness in the peripheral states, a structural bias towards low growth, a massively undercapitalised banking sector, mismatched monetary policy and a currency which remains grossly overvalued for many of its members. Until these issues are tackled, with both widespread political and economic will even further sprays of ECB liquidity will do little more than buy time, while further raising the cost of the potential break-up.
Update
The figures on exposure through lending programmes were obtained from the websites of the national central banks of:
http://ftalphaville.ft.com/blog/
( Finland got alleged collateral from Greece - they better get started on collateral from Spain and Italy though )
The ECB Loads Up On PIIGS Exposure
Reuters MacroScope blog covers some of our updated figures on the exposure of the ECB to the struggling peripheral countries. Following the ECB’s Long Term Refinancing Operations (LTRO) the ECB’s exposure to these countries has increased significantly, without their situations showing any sign of improvement – in fact many of them are now in a worse position.
Last year we showed that the ECB exposure to the PIIGS totalled €444bn. Just a year later this has increased by a whopping 106%, to €918bn. The exposures are detailed below:
Total exposure - €917.61bn
Exposure through lending programmes - €703.61bn
Last year we showed that the ECB exposure to the PIIGS totalled €444bn. Just a year later this has increased by a whopping 106%, to €918bn. The exposures are detailed below:
Total exposure - €917.61bn
Exposure through lending programmes - €703.61bn
Greece - €73.4bnExposure through the Securities Markets Programme - €214bn
Ireland - €85.07bn
Italy - €270bn
Portugal - €47.54bn
Spain - €227.6bn
This gives the ECB a massive leverage ratio 38.4:1. This in itself is not the issue, more concerning is the fact that a third of the ECB’s balance sheet now resides in the PIIGS.
On top of this, while the ECB’s exposure has been rising the quality of collateral supporting this exposure has been deteriorating quickly. There are a few factors underlying this:
- The value of the huge amount of PIIGS sovereign bonds which PIIGS banks hold has fallen while the default risk involved with them has risen quickly.
- The sovereign guarantee which backs up many of these banks (both explicit and implicit) has also become less solid as the states’ finances worsen and public outrage against bank bailouts increases.
- The risks and losses held on the balance sheets of these banks is yet to be fully acknowledged or fully realised in many cases. (For example, see our recent briefing on the massive problems in Spanish banks relating to their exposure to the bust real estate and construction sectors).
- The ECB has widened its collateral scope allowing even more opaque and harder to value collateral to be used to bank up its unlimited liquidity provision. That is to name but a few of the issues in play (we'll have a fuller discussion of the implications of this next week).
The real question which should be asked in all this is: how has the eurozone crisis continued to worsen despite the ECB more than doubling the money it has poured into these states?
Patently, the current approach to the eurozone crisis has failed. Even the ECB’s massive interventions only bought a short amount of time (and a lot less than many may have expected). The eurozone continues to fiddle at the edges of the crisis. All the talk of ECB lending, eurozone firewalls, IMF resources and austerity programmes fails to accept some of the fundamental flaws which underpin this crisis.
The eurozone needs to accept that there are a few structural flaws underpinning the eurozone crisis and move to correct them, not least: an endemic lack of competitiveness in the peripheral states, a structural bias towards low growth, a massively undercapitalised banking sector, mismatched monetary policy and a currency which remains grossly overvalued for many of its members. Until these issues are tackled, with both widespread political and economic will even further sprays of ECB liquidity will do little more than buy time, while further raising the cost of the potential break-up.
Update
The figures on exposure through lending programmes were obtained from the websites of the national central banks of:
and....
http://ftalphaville.ft.com/blog/
Finland’s got a [redacted]
‘Greece Pays Finland Collateral Money,’ goes the Bloomberg headline.
Well, that’s broadly true we suppose. Technically, Greek banks which cannot be named have transferred €311m of Greek government bonds which then moved into the custody of an international investment bank which cannot be named which (at some point) will sell them, put the revenues in safe assets, and release the collateral to the Finnish government if Greece does things which cannot be named to its EFSF bailout loans of which Finland provides a portion. (Finland pays a fee as part of its end of an exchange of cash-flows.)
‘Agreement on the collateral is executed according to plan,’ Finland’s finance ministry declared on Friday of this first €311m instalment. You can say that again.
But you still cannot know important details of who, what, how, and when this total return swap works.
Ironically enough, this has been made clearer than ever by the Finnish government’s belated decision to release documents containing some details of the swap, but very few at that. We’re indebted to Finland’s Talous Sanomat for publishing them.Here is the total return swap confirmation (click image for full doc):
And here is a representative page illustrating the granular level of detail in which the documents reveal the terms of the Greek transaction:
There are further frequently blank pages in the Credit Support Annex, Escrow and Custody Agreement, and (mostly intact save for the Schedule) ISDA Master Agreement, which is generic anyway. All via Talous Sanomat.
The government arranged partial disclosure after talking to the mystery banks.
The Finnish government has justified its continued secrecy over the redacted points with this official explanation. It warns that Finland will be left open to claims under English law if it breaches confidential provisions of the collateral agreement. It could lose its rights to the collateral.
Curiously… the government also says that full disclosure would damage Finland’s reputation for cooperation with its eurozone partners. Finland was the only EFSF guarantor to demand collateral from Greece as part of a second bailout. Its policy became highly controversial during the drawn-out bailout negotiations of last year.
Also it says that a confidentiality breach would risk Finland’s standing in financial markets. Ten-year Finnish government bonds currently enjoy one of the lowest spreads to Germany among eurozone sovereigns (some 40bps).
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