LONDON | By Philippe Gudin and Thomas Harjes (Barclays) | With its policy interest rates virtually at their lower bound, the ECB has begun a transition from a monetary policy framework mainly based on a passive provision of liquidity to the banking system to a more active and controlled management of its balance sheet through asset purchases.
MADRID | By JP Marín Arrese | The Lehman Brothers example showed all too vividly how a credit institution might collapse should it find its coffers empty. Lack of confidence or sheer insolvency trigger financial crises. Yet the implosion always happens when depositors are unable to cash out their money. No wonder Basel III emphasized the need for banks to set up robust liquidity buffers.
MADRID | By JP Marin Arrese | The crash in stocks all over Europe vividly showed how bitterly Draghi’s asset-buying plan disclosed yesterday disappointed investors. Yet, his introductory statement was widely in line with expectations. He broadly delivered last month promise to cash ABS and covered bonds issued by banking institutions, so long as the assets met the standard collateral requirements for ECB facilities. He even took a step forward by extending eligibility to lower than senior debt, the so-called mezzanine tranche. Furthermore, he provided firm assurances the plan would be in place for two years. What turned so utterly wrong? Undoudtedly, the ensuing press conference unfolded into an unmitigated disaster.
Madrid | The Corner | We imagined the ECB wouldn’t unveil specific details about the size and form of its next move. Mario Draghi just explained on Thursday that they will be acquiring private sector assets: covered bonds from eurozone banks in mid-October and asset-backed securities (ABS) at some point in 4Q14 and for at least two years. The Frankfurt based institution kept rates at 0.05% and will be expanding its balance sheet up to March 2012 levels, which is, €1Tr, in order to spur the economic recovery.