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Thread: ECB to call a halt to unlimited funding - Impact for Irish Banks?

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    Default ECB to call a halt to unlimited funding - Impact for Irish Banks?

    The ECB is to get nitpicky on the collateral used by banks in member states of the quality of their Asset Back Securites. Up to now Irish Banks could borrow freely without worrying about how secure the Irish property portfolio was.

    Now, this will play a role in which bank receives funds. We all know the quality of the Irish property portfolio, what impact is this quality going to have on the financial operations within this country going forward?

    The European Central Bank has made changes to its legal framework which underscore its power to limit individual banks' borrowing at ECB lending operations, amid ongoing discussion about how to tackle the dependency of some institutions on ECB funding.

    The changes, published on Saturday, clarify the ECB's ability to bar or restrict banks from borrowing from the ECB and impose ad-hoc limits on what assets can be swapped for loans.

    "On the grounds of prudence, the Eurosystem may also reject assets, limit the use of assets or apply supplementary haircuts to assets submitted as collateral in Eurosystem credit operations by specific counterparties," the new legal text said.

    The changes will come into force on Oct. 10. Although there was already a provision to restrict banks' borrowings, the new rules spell out the ECB's powers more clearly.

    As well as fears about a reliance on ECB funds, the changes come after the central bank was forced to write off 10.3 billion euros of collateral it was left holding after the collapse of Lehman Brothers and Icelandic banks.

    The new rules also set clearer limits on hard-to-value asset-backed securities by removing swaps and synthetic securities from the list of eligible cash-flow generating assets.

    To make it easier to claw back money if a bank collapses, they also limit ABS originators and where the underlying assets come from to the European Economic Area. There are also new rules for structured covered bonds backed by property loans.
    Official central bank data show that Southern European and Irish banks are the most dependent on ECB funding, with Greek, Irish, Portuguese and Spanish banks taking more than half of ECB loans, even though they account for less than one-fifth of euro zone GDP.
    ECB underscores power to limit banks' borrowing | Reuters
    “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - Friedrich A. Hayek

  2. #2
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    I thought they said that no Bank would be allowed fail?

    Now they want to increase their ability to claw back money in the case of a Bank collapse.

    I wonder how many billions they wasted trying to prop up Banks that were beyond saving?

    Ah well, at least the rich elite got their bond money back, which was the object of the excercise anyway.

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    I read somewhere about 68 billion of Anglo's deposits fall due next year. Who will lend the money other than ECB when depositors want their money back.

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    Politics.ie Member eoghanacht's Avatar
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    Quote Originally Posted by Cassandra Syndrome View Post
    ......... what impact is this quality going to have on the financial operations within this country going forward?
    stall the ball, in laymans terms what does this mean?
    that nama and the bank gaurantee were the greatest waste of taxpayers money ever?
    how does this impact on FF's budget plans, they must be tearing their hair out in HQ
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    Just read the link Casandra, and its all very vague sounding.

    It dose not mention any specifics at all, so it could apply to almost any instrument, and there are a range of 'prudent' measures mentioned, though no guidelines etc have been given. This is usual though from a central bank.

    I'm only beginning to learn how the entire house of cards has been put together and have only a vague idea of the particulars. It would seem however that the ECB is beginning to make some effort not to accept any old junk from whomever in exchange for funds. In that case it would seem to not be particularly good news for Irish banks, considering their current state and the status of the bonds etc that they hold.

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    I guess it´s clear from that, that the ECB will carry out controlled implosions of banks on life support. Any state owned banks with towering debts could be fluked then.
    Certainly if they´re backed up by a government already borrowing €2 Billion a month.
    The bank guarantee ain´t worth a fart.
    Alexander Suvorov: "The bullet is a fool, the bayonet is a fine chap."

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    Politics.ie Member HarshBuzz's Avatar
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    FTA has a bit more detail on this

    clearly bad news for Irish banks' liquidity
    “'retail deposit flight, I don't see that as a great danger. Ireland is an island” - Brian Lenihan - to hundreds of international investors

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