"In fact a deposit rate
cut will likely drain liquidity from the Euro area banking system and
accelerate the early repayment of LTRO funds. Negative interest rates on
deposits incentivize banks to “get rid” of their excess deposits rather than
suffer an erosion of capital. But the amount of reserves in the system can only
be changed if Euro area banks decide to collectively reduce their reliance on
the ECB. If a commercial bank makes a loan or buys a bond to avoid negative
rates, they simply pass reserves on to another bank, which ultimately end up
back at the ECB. As such, excess reserves would become something of a ‘hot
potato’, with no bank wanting them at the end of the day. Core banks are more
susceptible to negative deposit rates. Core banks have €620bn of deposits and
have borrowed €190bn (gross) from the ECB. In other words they are collectively
“long cash” by around €430bn (€620bn – €190bn). In contrast peripheral banks
are “short cash” by €650bn."
Pokazywanie postów oznaczonych etykietą ECB. Pokaż wszystkie posty
Pokazywanie postów oznaczonych etykietą ECB. Pokaż wszystkie posty
The Real Cyprus Template (the one you're not supposed to notice)
"The
Cyprus situation had been simmering for at least a year when in March of 2013
it finally broke; Cyprus had a week to take care of its banking situation or
else face a cutoff of access to the eurosystem by the ECB. This brought matters
to a head; the Cyprus Bail-In was finally settled upon, where uninsured
depositors in the two largest banks in Cyprus took major haircuts, and must
wait for return of their money until the assets of the banks are run down.
The banking problems in Cyprus had their roots in the Greek Sovereign Default, and were known by the general public for about a year prior to the recent default; a New York Times article dated April 11, 2012 lays out the particulars. (...)
Let's imagine you ran a German bank, and you paid very low rates to your overnight depositors. You have a great deal of really cheap money on your hands. What are your options to make money? You can either loan money to German homeowners one by one, but there are only so many German homeowners, and they only want to borrow so much money. So after loaning all you can loan, you search the world to try and find another bank that is advertising high rates for deposit money, and you stumble on the banks in Cyprus. (...)
Looking at the timeline, even as late as the end of 2011, when it was clear Greece would default and the banking regulator had to know the banks in Cyprus were doomed, the amount of Eurozone-bank derived deposits in Cyprus was over 20 billion euros, a good portion of which would be subject to massive losses if the Cyprus Template were to be applied at that moment. (...)"
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