söndag 4 mars 2012

Vad är och innebär ECB:s LTRO?

"Broadly speaking, the ECB controls liquidity in the banking system via Refinancing Operations, which are basically repurchase agreements, i.e. banks put up acceptable collateral with the ECB and receive a cash loan in return. These are the following main categories of refinancing operations that can be employed depending on the desired outcome:
  • The regular weekly main refinancing operations (MRO) with maturity of one week and,
  • The monthly longer-term refinancing operations (LTRO) provide liquidity to the financial sector, while ad-hoc
  • "Fine-tuning operations" (in the form of reverse or outright transactions, foreign exchange swaps and the collection of fixed-term deposits) aim to smooth interest rates caused by liquidity fluctuations in the market and
  • "Structural operations" are used to adjust the central banks' longer-term structural positions vis-a-vis the financial sector.
Refinancing operations are conducted via an auction mechanism. "

wikipedia: Open market operation

ECB-statistik: Open market operations

"Over the past few weeks the markets have been obsessing over just how much liquidity banks would tap from the European Central Bank (ECB) in the second of its extraordinary three-year LTROs (long-term refinancing operations).

The answer came on February 29th from the Frankfurt-based central bank of the 17-country euro area. The ECB announced that it had lent €530 billion ($710 billion), a bit more than traders had expected. The funding also exceeded the previous LTRO, in late December, which had already provided a massive €489 billion. The number of banks dipping into the honeypot reached 800, well above the 523 that borrowed in the first operation. /.../
the first three-year LTRO proved a runaway hit because the ECB showed its hand—or rather that of the wily Mario Draghi, who had taken the helm only weeks before, replacing Jean-Claude Trichet, the bank’s previous president. No, Mr Draghi clearly signalled, the ECB under his leadership would not become the lender of last resort to troubled governments. Instead, it would become the lender of first resort to troubled banks, which could in turn prop up toppling sovereigns by purchasing their debt. Moreover, it would provide funds for a record length (LTROs are usually for months rather than years and the previous record was just one year) and at dirt-cheap rates (the three-year average of the ECB’s main policy rate, currently at 1% and tipped to fall later this year to 0.5%).

The ECB’s eleventh-hour intervention in December dampened down the euro crisis, which had threatened to go critical. Italian and Spanish government bond yields had soared and scared investors had shunned European banks, causing an ominous funding drought. The first three-year LTRO broke this spiral of pessimism by removing fears of an imminent banking implosion.

As confidence returned, funding markets re-opened for stronger banks in stronger European economies. And crucially, the ECB’s backdoor approach worked a treat in Italy and Spain. Banks there lapped up the central bank’s funds and purchased their own governments’ debt. That pushed down Italian and Spanish sovereign bond yields whose spreads over German Bunds narrowed markedly.

At best, the second LTRO will maintain that return of confidence for a while. "

P.W., "Draghi strikes back II", Free Exchange 29 februari

Spekulationer i FT dagen före LTRO 2, om hur de pengarna skulle komma att användas, utifrån vad som hänt med LTRO 1-pengarna:
"The first LTRO mainly benefited eurozone sovereign bonds and helped shore up bank balance sheets as banks primarily used the money to pre-fund maturing debt or park it in government debt, says Huw van Steenis, banking analyst at Morgan Stanley.

He thinks banks will deploy the LTRO money similarly the second time round. Italian lenders, for example, are expected to buy a further €60bn in eurozone government bonds following Wednesday’s LTRO, Morgan Stanley estimates. Spanish banks could buy a further €25bn-€60bn, the bank says.

Figures from the ECB this week have reinforced this view. They show that a large chunk of the money from the first LTRO was channelled into Italian and Spanish government bonds as banks used the cheap loans to profit from buying higher yielding sovereign debt in a 'carry' trade. /.../

Carlo Mareels, senior banking analyst at RBC Capital Markets, says some of the LTRO money has also found its way back to the ECB as commercial banks have decided to deposit cash at the central bank. This would explain the elevated levels of cash being held at the ECB. An average of €430bn has been held at the central bank’s daily facility since the end of December, nearly double the amount held there before the three-year loan operations were announced."
David Oakley, Mary Watkins och Miles Johnson, "Europe banks hungry for second helpings", FT 28 februari 2012

live-rapportering om LTRO 2, från 29 februari: FT Eurozone crisis live blog 29 feb.

Sony Kapoor om konsekvenserna av LTRO 2 för krisens/återhämtningens fortsättning, citerad från livekrisbloggen: "The fact net new liquidity at almost Euro 400 billion is almost twice that of the previous LTRO operation means that banks will now have more funds. Whether they use it to fund a carry trade or to lend more to the real economy will strongly shape what direction the crisis takes next."

och Bank of England-chefen Mervyn King, från samma källa: "The idea that the long term repo operations have eased the supply of finance to small businesses in the euro area is a myth. /.../ What it has done is to provide a source of funding to banks particularly in the southern member countries of the euro area which were experiencing a bank run, enabling them to fund the withdrawal of funds."

Uppdatering 8 mars
ECB-chefen Mario Draghi hade presskonferens efter direktionsmötet idag, och kommenterade då inte bara räntepolitiken utan även t ex LTRO. Om detta uttryckte han stor nöjdhet över att LTRO enligt honom sprids väl, inte bara till storbanker utan också till små banker och genom dessa till små och mellanstora företag:
"I would love to read you the places, the towns, the villages where these banks are but often they would be the only bank in towns so they could be identified. But this tells me one thing – this money is now closer to the small and medium-sized businesses than it was before. I’m not saying this money will necessarily go to SMEs but it is certainly closer. We have this in mind because 80 per cent of eurozone employment is SMEs."

citerat från FT:s livekrisblogg 8 mars

Uppdatering 13 mars
Paul de Grauwe är mycket kritisk till utformningen av ECB:s LTRO i FT idag. Vad han kritiserar är i grund och botten detta: de två omgångarna av LTRO har genomförts för att driva ner statsskuldsräntorna för krisländerna i eurozonen. Men eftersom ECB istället för att själva handla statspapper, har delegerat detta uppdrag till privata banker, och regnat pengar över dessa banker för att få dem att handla just statspapper, så har flera problem uppstått:
"The decision to delegate to panicky bankers has had three unfortunate consequences that will become clear now the central bank has completed its second liquidity injection. First, because banks channelled only a fraction of the liquidity they obtained from the ECB into the government bond markets, the ECB had to pour much more liquidity into the system than if it had decided to intervene itself.

Second, new waves of panic may grip the banks again, leading them to sell off government bonds. The risk that this may happen undermines the credibility of the whole operation, and can quickly lead to a new crisis in the bond markets. Will the ECB then again increase its lending to these banks in the hope that frightened bankers will resume their bond purchases?

Third, and most importantly, the liquidity injections in the banking system create moral hazard problems that are more dangerous than those resulting from direct intervention in the sovereign bond markets. Banks have been given unlimited sources of funding to make easy profits. This reduces their incentives to restructure their balance sheets, which would make them more resilient in the future. /.../"
Jag har själv funderat på frågan: vad är en socialdemokratisk hållning till LTRO i detta läge? Och kommit fram till att ett standardantagande ju vore: att ECB borde intervenera mer direkt och delegera mindre till privata banker, i enlighet med den socialdemokratiska uppfattningens tilltro till politikens förmåga. De Grauwes argument kan användas för en sådan hållning - även om den från min sida än så länge är långt ifrån färdig-genomtänkt.

de Grauwe, "ECB intervention is the only way to end the crisis", FT 12 mars
Richard Milne och Michael Mackenzie, "Drastic funding transfusions risk leaving banks hooked", FT 12 mars
Ralph Atkins och Mary Watkins, "Germans concerned over Draghi liquidity offer", FT 9 mars

Uppdatering 20 mars
Steve Johnson, "ECB loans 'could harm' debt market", FT fm 4 mars
Vilka invändningar kan man ha mot LTRO II, frågar Gavyn Davies, och svarar:
1. att man skapar/förstärker ett "zombie banking"-system av institutioner som är beroende av ECB för att klara sig
2. att (vilket Jens Weidmann varnat för) ECB exponerar sig för alltför stora risker
3. risk att spä på inflationen (alltför mycket)
Gavyn Davies, "ECB liquidity is not a free lunch", Davies blogg på ft.com 4 mars

Uppdatering 29 mars
David Miles på Bank of England förklarar skillnaden mellan ECB:s LTRO och BoE:s quantitative easing (QE):
"Some people think of long-term repos as quite different operations to asset purchases. But in general one can think of a long-term repo as an outright asset purchase, just one with a pre-announced exit plan when the asset is sold back to the counterparty for a fixed amount. In that sense it is not dissimilar to QE. But it is certainly not identical…

Another difference between the operations of the Bank of England and the ECB is that the counterparties to the ECB’s operations are banks, whereas the Bank of England has mainly bought assets from non-banks. That is by design: to some extent we are aiming to circumvent the banking sector to get money flowing through to the non-bank private sector."

Miles, "Government debt and unconventional central bank policy" (pdf), föredrag 26 mars, via Joseph Cotterill, "Get used to getting bigger Old Lady", FT Alphaville 27 mars

Och Richard Milne och Mary Watkins har en kritisk-pessimistisk analys av LTRO 2 i FT:
"'Financial markets have certainly been impressed. But this isn’t really solving anything and in some respects it is actually worsening the intricate and nepotistic relationship between banks and sovereigns,' says George Magnus, senior adviser to UBS, the Swiss bank. He describes claims by some European politicians that the crisis is over as 'myopic'.

Concerns over the LTRO are several, ranging from the question of banks becoming dependent on artificially cheap funding to fears about the structure of their balance sheets. But one of the main charges is that the sheer cheapness of the funds has prompted banks to go on another credit-fuelled binge, similar to what preceded the global financial crisis but this time snapping up the debt of their own governments. /.../

While banks have used the money for a variety of purposes including refinancing their debt, they have also clearly stocked up on state paper. Spanish banks, for example, increased their holdings of Madrid’s state bonds by 29 per cent in December and January combined, the last two months for which data are available, to reach €230bn. Italian banks boosted their domestic purchases by 13 per cent over the same period to €280bn.

The effect on government bond yields has been dramatic, particularly in short-dated maturities, which have tumbled. Conversely, this demand has strengthened bond prices, which move inversely to yields. Under the so-called carry trade, banks get the money at 1 per cent from the ECB and invest in higher-yielding securities. Two-year yields for Italy have fallen from 4.6 per cent to 2.5 per cent and for Spain from 3.4 per cent to 2.5 per cent so far this year. /.../

Describing it as a 'Ponzi scheme', Marc Chandler, currency strategist at Brown Brothers Harriman in New York, says simply: 'Weak banks are buying weak sovereigns.' /.../

A second big problem that many see is that the LTRO lessens the pressure on both banks and sovereign borrowers to reform. In essence, the ECB loans have bought three years for banks to reform themselves and for the southern countries in Europe to rekindle economic growth."

Richard Milne och Mary Watkins, "European finance: A leaning tower of perils", FT 27 mars

Uppdatering 17 april
Barry Eichengreens senaste voxeu-krönika handlar om kopplingen mellan ECB:s penningpolitik och EU-ländernas reformpolitik i dagens post-LTRO-situation. Recessionen fortsätter, och eurozonen måste komma tillbaka till tillväxt, och Eichengreen hävdar att ECB har för stora (informella, förstås) reformkrav på regeringarna för att ösa på mer med penningpolitiken.
Eichengreen, "The ECB's Lethal Inhibition", voxeu 12 april

Och Krugman kallar LTRO 2 för en "brave and effective action". Vad han är besviken på är att ECB (och i än högre grad Europas regeringar) inte fortsatt med mer expansiv politik.
"the Continent needs more expansionary monetary policies, in the form of a willingness — an announced willingness — on the part of the European Central Bank to accept somewhat higher inflation; it needs more expansionary fiscal policies, in the form of budgets in Germany that offset austerity in Spain and other troubled nations around the Continent’s periphery, rather than reinforcing it. Even with such policies, the peripheral nations would face years of hard times. But at least there would be some hope of recovery.

What we’re actually seeing, however, is complete inflexibility. In March, European leaders signed a fiscal pact that in effect locks in fiscal austerity as the response to any and all problems. Meanwhile, key officials at the central bank are making a point of emphasizing the bank’s willingness to raise rates at the slightest hint of higher inflation.

So it’s hard to avoid a sense of despair. Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy — and their society — off a cliff."
Krugman, "Europe's Economic Suicide", NYT 15 april

Uppdatering 27 april
Investeraren Pierre Lagrange skriver i FT att ECB:s LTROs varit kraftfulla och nödvändiga för likviditeten, men att de måste förenas med mer långsiktiga åtgärder.
"The European Central Bank’s more restrictive mandate does not allow it to print money for any other purpose than lending, so QE is out of the question. Mario Draghi can therefore be said to have demonstrated the new resolve of the central bank under his leadership in unveiling his longer-term refinancing operation programme within eight weeks of taking office. As we have seen in the case of Hong Kong in 1998 and Switzerland in 2011, decisive central bank intervention sends a message to the markets that there is a willingness to do whatever is necessary.

Conversely, earlier ECB bond purchases were an indication of wobbly resolve which caused the markets to gorge on negativity. LTRO has therefore transformed a soft belly into a six pack, but more exercise is needed. Structural issues that are key to longer-term survival need to be addressed while the artificial support of central bank liquidity is in place. Otherwise LTRO will simply prove a case of throwing good money after bad."
Pierre Lagrange, "Draghi's remedy must not become a panacea", FT 19 april

Analytiker på Rabobank visar att det pågår ett skifte i ägandet av italienska och spanska statsobligationer, från utländska ägare till inhemska. (Också ovan citerade Lagrange pekar på denna utveckling i fallet med Spanien och hävdar att det tyder på att LTRO misslyckats med att öka marknadsförtroende över gränserna inom eurozonen.) Rabobank-analytikerna hävdar att LTRO snabbat på det skiftet.

"This evidence of the ECB funding a switch of peripheral debt from foreigners to domestics, in turn, supports our earlier view that rather than promoting some form of fiscal unity (the solution to the crisis in our view), the LTROs have encouraged financial disunity or de-euroisation. Another way of looking at this is that the LTROs were used to counter a run on peripheral banks (i.e. the ECB stepped in to finance banks’ own looming redemptions) and, in doing so, have facilitated a run on their respective sovereigns. The recent resurgence of pressure upon the Spanish and Italian curves implies this “sovereign run” has accelerated of late."
Via Joseph Cotterill, "De-euroisation is (still) de problem", FT Alphaville 20 april

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