Spanish Banks May Face €17 Billion Margin Call As ECB Found To Lie About Collateral Haircuts

Tyler Durden's picture

Mario Draghi has reassured the world that no matter how much 'crap' collateral is taken on to the ECB's balance sheet, their risk management process is rigorous and ensures the safety of the entity's capital thanks to well-devised haircuts and collateral. Once again, it appears from a report in Die Welt (via Bloomberg), Draghi lied, as the ECB is now checking terms on some lending to Spanish banks that may have already contravened the ECB's mandate allowing overly generous terms to be offered on the Spanish banks' collateral. As Bloomberg notes, the issue surrounds EUR80bn relatively short-dated T-Bills which were wrongly classified as rated 'A' instead of the 'B' that agencies - except DBRS! - had assigned (a vast difference) - which would imply (if the ECB re-assigns the correct rating) the affected Spanish banks would have to produce up to EUR16.6bn in additional collateral (cash or quality collateral that is non-existent in Europe). This of course "casts doubt on the quality of the ECB's risk management" and merely serves to confirm the Juncker-ian lies we have come to expect from Europe's leaders (economic and political).

As a reminder, we warned of exactly this back in April and it seems the ECB has merely chosen to ignore it for months:

...The first is 5%. This is the haircut increase that ECB collateral will require once all ratings agencies shift to BBB+ or below (meaning massive margin calls and cash needs for the exact banks that are the most exposed and least capable of achieving said liquidity)...

and it appears that the ECB read our report of what could happen, comprehended its severity, and decided that it would be best to not let that collateral crunch happen. As to how to avoid it happening? Simple: ignore its own collateral rules!

Via Die Welt (Google Translated):

ECB Lends Spanish Banks More Money Than Allowed

The European Central Bank has Spanish banks borrowed 16.6 billion euros. But the collateral do not even meet the individual requirements of the central bank.


It is a subject in which representatives of the European Central Bank , always place a look that will inspire confidence and simultaneously acts annoyed. Repeatedly accuse critics of the ECB, it was almost mindlessly generous with the securities, the banks have to pledge as collateral for their Fed loans, they now accept any junk.


And again countered ECB President Mario Draghi stressed such accusations cool. "The risk management of the ECB is really very careful and has earned this recognition, "he said, for example, in the spring, after Bundesbank President Weidmann warned of growing risks in the central bank's balance sheet. And shortly afterwards the Italians said, even ironically, central bankers made ??their "likes to worry about things that no one else cares to make."


Fed much more lax than the official line


But apparently makes you look in Europe rather too little to worry about the risk policy of ECB . Because the actual line of the central bank is much more lax than the official. Currently, the shows in dealing with Spanish bonds. Loans of up to EUR 16.6 billion commercial banks have received from the central bank, although the money to research the "Welt am Sonntag" should not have got - if the ECB would apply their own statutes strictly.


Because the Spanish government bonds, the banks have been pledged as collateral to satisfy the requirements of the Central Bank only partially. The huge sum of 16.6 billion in itself is alarming - but even more alarming is that the ECB seems certain risks simply overlooked. Either from carelessness or intent. Neither is reassuring.


Banks can borrow money at 0.75 percent


Since the peak of the financial crisis, Europe's banks can borrow unlimited amounts of money from the central bank, currently the tiny interest rate of 0.75 percent. The only limit: you must pledge securities or credit claims as collateral for the central bank to get their money back.


The requirements for these securities, the Governing Council has scaled down over the past few years more and more. And that the central bank in practice might not even with these lax requirements taken very seriously, showing its current handling of Spanish government bonds with up to 18 months duration, so-called T-bills.


Whose volume is now running at 80 billion euros.




Spanish T-bills do not meet solvency rules


The problem is that T-bills no longer fulfill the conditions for this first-class credit rating. Papers from 66.5 billion euros are really just second class and should therefore under ECB rules are provided with a higher discount of 5.5 percent - which would mean 3.3 billion euros less credit for the banks. The remaining T-bills in a volume of EUR 13.3 billion figure is only mediocre - they would no longer accept the central bank as collateral.


The decisive criterion in this business rating scores. In the highest rating category include only securities from at least one rating agency with the "A" grade. This is at issue T-bills is not the case: they come from the major rating agencies, Standard & Poor's, Moody's and Fitch are only notes in the 'B' range and therefore only second-rate securities. For two of the bonds, there is only one note from S & P, and not even enough for the lowest category.


ECB accepts little known rating agency


Confronted with the peculiar reviews, the ECB provides answers only raise new questions. First, she asserts, everything has its accuracy. The haircuts for the Spanish T-bills are "properly calculated because the rating from DBRS currently 'AL' is'. In fact: The little-known, but by the ECB recognized rating agency DBRS Spain has awarded an "A (low)", still a first class classification.


However, this grade is according to the agency really only useful for long-term debt of Spain, short-term credit awards not DBRS. The ECB is challenging not to: Such ratings would be accepted for short-term bonds, the central bank can do. Of which is the official, after all 148 pages of rules for the strong valuation of collateral course nothing. The ECB points to another, non-public Manual - to the derogation was captured, and had been since 1999.


For Ireland seem to apply different rules


Strange though: Up to Ireland seems to be the secret handbook not yet penetrated . Because even though Ireland is by DBRS also rated "A (low)", the Irish central bank considered the T-bills the Irish Government only as second class and provided with correspondingly higher markdowns, to the detriment of the local banks that these papers-ECB collateral use. And the Irish are committed to this approach: Twice the Irish central bank explicitly confirms the classification made ??was incorrect. The two T-bills had their own rating to "B"-level classification in a better risk category is not appropriate, therefore.




ECB refuses to clarify the facts


For the banks that hold these T-bills, such a correction would be highly controversial. So far, the government securities they were for a good deal. You can borrow from the ECB for only 0.75 percent of money and buy it T-bills, which bear interest at 2.8 percent. But with a downgrading of securities throughout the calculus would zunichtegemacht, instead funding problems could even threaten. Because in this case they would have other collateral of up to 16.6 billion euros in their book. Or they have to repay central bank loans and get the money from other sources.


The ECB found itself by the end of the week not in a position to investigate these oddities in their security policies. The issue would be examined, a spokesman said simply. In general, the ECB refers to the fact that most European banks had deposited with the central bank more collateral than the loans granted is actually necessary.


Spain would support themselves if necessary banks


Whether this is also true for all the Spanish banks remains unclear. Finally, many institutions in the country battered and get fresh money almost exclusively from the central bank. In the worst case, the banks would have to ask at the Bank of Spain to expensive emergency loans. A step on the way the ECB would not tell the public.


Confidence in the central bank to strengthen this kind questionable steps, anyway. It swings the ECB to just become more powerful, they will soon also control the banks. But they should do so credible when they are not even their security policy for banks, their very own business, under control? Critical observers ask is: who actually controls the ECB?


So, the ECB defends its decision for Spain on the back of a lone rating agency DBRS holding an A-Low rating (which itself says is not representative) and also is in direct opposition to the treatment of Ireland (which is collateralized as a 'B' rated credit while also maintaining an 'A-Low' rating with DBRS!).

So it would appear that if a hedge fund really wanted to see Draghi sweat and bring Europe's teetering-on-the-brink edifice to its knees, it merely needs to pick up the phone and request DBRS to create report on Spain's short-term financial health - since surely they like the other three raters will see the dismal and accelerating worse state of economic dysphoria and be unable to maintain an 'A' rating on this nation?

We sense Irish eyes will not be smiling and Draghi's nose may be growing once again... and we laid out the implications here.

This is now the story of the weekend!

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fijisailor's picture
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TwoShortPlanks's picture

The game here is really very simple; get the Western World, Eastern World and all the Emerging Economies hooked on credit, bring them to their knees and fearful of a global collapse, keep the average citizen dumb enough and the solution complex enough so that the average person MUST trust the solution providers, make sure that they stand to lose everything (Homes: $3,000 deposit really opened up the market to every possible debt slave) then, by magic, announce that we simply must stabilize the global financial system by way of a common Central Banking Bond backed by Central Bank physical Gold and Derivatives (not enough physical, why not spread the love around). Forget Gold backed currency, you don't need it-it's all about being a Gold creditor to a Central Bank.

Think about it. You have physical Gold, you need safe storage, then get free safe storage at a CB near you and collect interest too. And how much interest will you need being a creditor in front of the multiplier-inflation effect??? Not very much!

The problem here is Europe, Brussels (that Rango-looking motherfucker Van Rompuy) MUST gain political and financial control over the Eurozone. Remember the words of Rothschild; "Give me the power to control a nations money....", well, the Eurozone are closing that particular deal right now, so watch what Obummer or the other wanker does after the elections, 50 bucks says they'll put the thumb screws on Germany....don't be surprised if Greece is playing the wild-child fool deliberately.

The winner here is of course, the private holders of the 70% of all above ground Gold, (you know, the fuckers who were buying before, during and after the Tech Stock boom), because if the CB Bonds are Gold backed and you own Gold, then you're a creditor to the Central Banks, ergo you are in front of Inflation, at the top of the Wealth Effect waterfall. But in reality the CB's don't really need the shit, they just want an excuse to pay the wealthy elite (the Boss) money for nothing while offering free storage.

Gold will become a monetary metal again, but not within the financial system, it will be underpinning the Bonds which support it.

Draghi is merely playing the role of CFO, he needs to offer a way out, it's Brussels' job to create a plan for Euro-wide politico-financial change, and a GFC-style collapse as a gun to the head to get the signatures (and they will coz everyone's looking at Greece and Spain, saying, fuck that for a joke!).

Once this is all done, that's it, 300-400 years of work and the whole planet is under lock and key.

Welcome to the New World [Zion] Order....and it's so fucking close it's not funny (less than a decade away).

If you've got physical, you've got party invites!

PS. In a NWO you don't need to control Inflation and you don't need to expand the money supply, you simply control Wages and 'Standard Of Living', which is the opposite side of the same coin really.

TwoShortPlanks's picture

So many people don't believe that the Illuminati even exist, hell, I don't believe they exist either...until literally just now!!!

Let's just say they evolved a little and haven't done too bad for themselves!

Evolution of the New World Order: Ancient Mystery Religions, Kabbalism, Gnosticism, Knights Templar, Rosicrucians, Freemasons, Illuminati....blah-blah-blah....New World Order.

Their Headquarters is now the Bank Of International Settlements.

The Swords of the Knights Templar have now been replaced by Swift Codes.

Like every good Illuminati/Knights Templar hang-out, you must advertise who you are on your building, well, take closer look at the Building of the BIS, it's a fucking Knights Templar Helmet (a Heaume XIII to be accurate):
Note the eye slots, the nose bridge and guard, ventilation slits, and even the row of rivets around the Crown.

Knights Templar Helmets:

A Nice BIS Castle Tower taboot:

And where did the Rosicrucians end up....Switzerland of course....Rosicrucians means 'Rosy Cross'...oh geez, how about that for a coincidence, so does the Swiss National Flag (Inversed).

Right now I'm betting that a majority of that 70% of above ground Gold, and thousands of Tons of Central Bank Gold is within a stone's throw from one of those BIS buildings.

Remember when Rothschild was on Bloomberg at the NYSE, and he said to "hold your Gold" shit Sherlock!

And connect the dot a little more while you're at it:

So let's make Gold a Tier 1 asset again shall we...hmmm, let's do that at the Basel Tower:

This whole thing feels like a fucking bad dream.

Non Passaran's picture

> This whole thing feels like a fucking bad dream.

I am not sure about that but your post sure does!

tsx500's picture

This summarizes the entire article in 30sec :  <iframe width="560" height="315" src="" frameborder="0" allowfullscreen></iframe>

Rainman's picture

Throw this collateral on the pile called ' mismarked assets ''s already taller than Mt. Whitney and a few hundred billion more makes no difference.

bank guy in Brussels's picture

Collateral ... Want your collateral, Mr bondholder? ... Here it is, to the max, fabulous 35 seconds of cinema -

Tom Cruise getting his 'Collateral' briefcase back with a semi-automatic pistol

For those who have never heard gunfire on real city streets (Long ago, I had the privilege, visiting rough cities of the United States) ... this is what gunshots in the streets are REALLY like ... i.e., LOUD:

Tenshin Headache's picture

Nothing to see here, Draghi is just "cutting through red tape."

Joebloinvestor's picture

"A little known rating agency".


Didn't Madoff pull of his scam by using a "little known accounting agency"?

Dead Canary's picture

"The ECB is investigating the matter," the bank spokeswoman said.

Q: Fox, did you kill those chickens?

A: Dunno. I'll talk to the pack and get back to you.

ebworthen's picture

Liar loans, packaged into securities and derivatives, propped by subjugable bonds, backed by nothing but austerity for citizens who are unemployed or earning less and who will be denied already taxed entitlements, and taxed more for less in the future.

Shit sandwich recipe for societies that deem themselves 'progressed' from the Dark Ages.

Joebloinvestor's picture

All backed by FIAT currencies!

Sam Clemons's picture

Who does control Central Banks?  Very good question...

HD's picture

Only two more days and then the show can start...

Tenshin Headache's picture

Hopefully Romney will have more flexibility after the election :)

THX 1178's picture

He'll be too concerned about 2016. Can't you hear it now: Obama's fault! Obama's Fault! Ahh the Romney depression! How the fuck did Bush skate? How did that happen? Oh well, back to the televised sporting events.

Tango in the Blight's picture

Romney isn't black so that excuse doesn't fly. Here in Europe nearly everyone in the media thinks that Obama is the best president ever just because he he is a black.

A liberal Dutch newspaper's headline I saw sighed "If only the rest of the world could also vote then Obama would win with a landslide".


orangegeek's picture

Markets open at 6p EST tonight - will be interesting to see what Gold does.  Europe opens at 3am EST - could be sharp moves down in store for us tomorrow.


And then there's the SP500.


I don't think the markets are going to wait until after Tuesday - they've been hanging on for dear life up to this point.

GCT's picture

Orange I think gold is about to get slammed.  After reading up on 2008 this is starting to get ugly.  Futures are already down big time and gold down another $40.00.

Hard to believe.  Honestly I would have thought TPTB would do their best to have a market rally this week.  We canont have a sitting president with the markets crashing the week before the big hoax!

Seize Mars's picture

Die Welt says: "Critical observers ask is: who actually controls the ECB?"

Funny, but the same names keep popping up over, and over, and...,_4th_Baron_Rothschild




Treason Season's picture

Link for the Die Welt article bitte.

Seize Mars's picture

It's above, in the article that we are currently replying to.

theecononmyisamess's picture

I think the good collateral referred to is something brown and steamy.

williambanzai7's picture

Once you start printing money like a whirling dervish, risk management becomes a fools errand.

The whole thing is going to blow up big time.

Grand Supercycle's picture


...says prediction markets.

These daily charts are still breaking down & overdue sell off expected after Obama victory: SPX / CRUDE / COPPER / GOLD / SILVER / EURUSD / AUDUSD

USD will rally.

Winston Churchill's picture

But what are Ladbrokes odds ?

Ask the shearer . not the sheep.


OneTinSoldier66's picture

Debt Bomb


The addiction to more credit just goes ooonnn and ooonnn.

americanspirit's picture

"Wrongly classified as A instead of B". Oops!

Wrongly classified by who, might we ask? Names please.

Marco's picture

Why are we still talking about "paper" capital when talking about central banks? They have infinite "paper" capital ... the only thing they can lose is the pretense that they aren't expanding M0 in the long run.

Anyone who believes the ECB and FAR more so the FED aren't expanding M0 with their printing is an idiot though.

R_J's picture

To sum it up, -gurGGle tranZlation zuX a lot more, and The ECB lies even more than before...
-yeah thats about it really...

Black Forest's picture

Critical observers ask is: who actually controls the ECB?

Simple answer: the Mafia.

ArrestBobRubin's picture

Agreed, as long as you mean La Kosher Nostra that is.

Yen Cross's picture

Draghi is going to be up to his eyeballs in

premier à être remboursé   "Pigs" shit, in the near future.
Zero Govt's picture

"Draghi has reassured the world that no matter how much 'crap' collateral is taken on to the ECB's balance sheet, their risk management process is rigorous..."

That's a hard sentence to swallow without choking... take on crap ...rigorous management ....nope, just won't go down that one!! 

" to avoid it happening? Simple: ignore its own collateral rules!"

Draghi had trouble swallowing this crap too. His answer? Cut throat (rigorous management) wide open and swallow the crap. Brilliant.

And this is central banking. The whore house at the centre of our financial system 

ArrestBobRubin's picture

"And this is central banking. The Jewish owned and run whore house at the centre of our financial system"

There, fixed it for you. "Central banking" didn't just appear spontaneously you know.

SKY85hawk's picture

Will the umpty-billions of fraudulent 'BAD-BANK' mortgages be rated more accurately?

That would warmup my shorts nicely!

?Mark-2-market reforms next??



q99x2's picture

Corporations need to begin transactions in bitcoin and quit letting these corrupt banksters commit terrorist acts.

ArrestBobRubin's picture

Draghi, like Mario Goldman Monti, is just an errand boy for the Real Terrorists. Soon they'll both be going the way of this loathsome Jew's monkey from Britain:

Sabbath Goy MP Denis MacShane Resigned By Gilad Atzmon

"Seemingly, the list of Zionist swindlers never stops expanding.  The shameless Labour MP Denis MacShane who made a political career chasing and harassing the critics of Jewish Power and Israel has resigned from Parliament  yesterday after being found guilty by the Parliamentary standards committee. The Zionist stooge who was also the chair of the all-party Parliamentary inquiry into antisemitism was falsifying his expenses -the Parliamentary committee found he had submitted no less than 19 false invoices which were “plainly intended to deceive” Parliament’s expenses authority..."

ArrestBobRubin's picture
When the Rothschilds Dial 911

"Many US Presidents warned of the intrigues of the cabal, including George Washington, Thomas Jefferson, John Adams, John Quincy Adams; and later Andrew Jackson, Abraham Lincoln and John F. Kennedy.  The latter two were assassinated for trying to nationalize the Federal Reserve via the issuance of Treasury Department-backed (publicly-issued) currency..."

Catflappo's picture

Fuck you Draghi!!!

Ned Zeppelin's picture

Of course, there will be no margin call, just more printing. No choice.

chump666's picture

from Wires:

Die Welt am Sonntag haircuts too low, some collateral ineligible
EUR 80 bln of 18-mth T-bills wrongly classified with top-notch rating
Questions balance sheet safety of supposed lender of last resort

Mario is a dodgy f*cker

Dareconomics's picture

Spain is insolvent. Although the mainstream media reports that the country has completed 95% of its financing needs for 2012, my calculations show that it has about €54bn left out of €188bn assuming a budget deficit of 8.1% and maturing debt of €98bn.

Just because the country is insolvent does not mean the ballgame is over. Spain cannot be allowed to fail, because that will throw world markets into a panic. Draghi will not allow this to happen on his watch, so the ECB is using every trick in the book to prop Spain up.

The two articles above reveal that Spanish T-Bills are being overrated as investment grade so that the Spanish banking system gets the maximum bang for it euro when it posts the bills as collateral.

While the ECB wishes that Spain would sign up for its OMT program, it cannot force Spain to do so and must perversely keep Spain afloat while it dithers.

An0ther way it supports Spain is by staying silent as the country's finance ministry issues fictitious numbers. The country is still claiming that it will meet its 6.3% budget deficit target while its economy implodes and employment reaches dizzying highs.

These tactics can prolong the status quo for only a limited amount of time. Just like every other financial fraud, the lies used to prolong the scheme are the seeds of its destruction. Remember Greece, Madoff and Enron? Spain is no different.