ECB Warns Calm Before Storm Ending

Tyler Durden's picture

The European Central Bank warned yesterday that six quarters of recession are eroding the resilience of banks and risk ending what it describes as 'the calmest period in financial markets since 2011'. As Bloomberg's Niraj Shah notes, the Bloomberg Euro-area Financial Conditions Index has averaged 0.31 this year, compared with -1.47 in 2012 and the measure has only ended in negative territory on three days this year. However, it has very recently fallen to its lowest in a month as financial CDS begin to rise (even with Mrs. Watanabe's presence) to once again wider on the year. As The ECB adds, "Financial stability conditions in the euro area remain fragile. Several vulnerabilities in the interaction between sovereigns, banks and the macroeconomy persist."


Via The ECB:

Financial stability conditions in the euro area remain fragile.


Several vulnerabilities in the interaction between sovereigns, banks and the macroeconomy persist. Further concrete action by the public and private sector is needed to durably sever negative feedback loops between distressed sovereigns, increasingly diverging economic growth prospects at the country level and concerns about the financial soundness of banks. A roadmap has been drawn up for completing Economic and Monetary Union (EMU). Its completion, including notably the part related to the banking union, is essential.


The ECB Review highlights four key risks to euro area financial stability:

  • A further decline in bank profitability, linked to credit losses and a weak macroeconomic environment. Continued and prompt progress in proactively tackling bank balance sheet problems is needed.
  • Renewed tensions in sovereign debt markets due to low growth and slow reform implementation. Progress in adjusting public finance vulnerabilities should not unravel. Beyond this, continued momentum is needed towards completing a genuine EMU, notably including a full banking union and a strengthening of fiscal frameworks.
  • Bank funding challenges in stressed countries. Continued steps at both the national and European level are needed to tackle remaining fragmentation in bank funding. Furthermore, bank funding markets will benefit from a predictable and consistent approach to bank supervision and resolution across Europe; the launch of the single supervisory mechanism will be a key milestone in this respect.
  • Reassessment of risk premia in global markets, following a prolonged period of safe-haven flows and search for yield. Stable and predictable policies are key to the prevention of such a risk reversal. To reduce the losses of such a possible risk reversal, banks and supervisors should ensure that bank capital buffers are sufficient.


Financial Conditions remain 'green' - based on market indicators - but have rolled over in recent days...


Though as is clear, European financial credit (green) is notably less impressed than European financial stocks (red) on the year...


Hardly surprising when one looks at the disconnect between equities and macro reality...


And in case you thought the ECB's SME lending plans were going to save the day - they are already talking that back: As Reuters notes, the ABS market for small and mid-sized companies "is a very small thing indeed, very small," said [ECB's] Constancio. "So let's not overblow this thing. It's an option, I won't say more."


Charts: Bloomberg

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IridiumRebel's picture

Always a good sign when they warn us of this shit. I guess May is almost over setting us up for the Doom in June.

BandGap's picture

If they're warning us, it's already happening.

Japan, the EU - flip a coin.

GetZeeGold's picture



Clearly they've learned nothing from Baghdad Bob.

buzzsaw99's picture

These ARE the good old days.

NoDebt's picture

Yep.  You think you hate it now, but just wait!  Today's as good as it gets.  So enjoy.

LawsofPhysics's picture

Treasuries, must start catching a serious bid.  Friday's larger POMO should help.

fonzannoon's picture

Nah...2.05ish is the low.

Dear benefits provider,

I have noticed lately that my bond funds have been losing a a substantial amount of money. I am very concerned that the stock funds may be overvalued and I do not wish to take the risk associated with them. Kindly provide me with the choices available to me other than bonds and stocks.

Thank you,


Hulk's picture

You described the situation quite nicely !!!

Got Gold ???

drdolittle's picture

So, recommendations beyond more phizz?

Bindar Dundat's picture

Recommendations???    Dr. Dolittle.......Small biz that can change prices quickly and sell small ticket items like coffee, guns, and booze.  Get 33% of any small biz you that has a adequate  balance sheet ( acid test 3:1 ) and can ride out the waves. Also make sure you use a shotgun clause in case you wanty out.  Also bitcoins and more gold....

Bindar Dundat's picture

Or start your own small biz the old fashion way -- with ethics.


It will work in hard times when the banksters are running scared.  Read this book and find out why.

scatterbrains's picture

Looks like gold and silver got the message.. unsterilzed ecb printing on deck.. this time I think the pm's will launch much much higher..  stocks not so much as it starts to sink in with peeps that it's now a game of print or die.

shovelhead's picture

Just start printing and keep buying trash...forever.

What problem?

Yen Cross's picture

      The European technocrats are playing on the serfs emotions now. They're getting ready to go all in on their one size fits all EMU meme. Scare tactics from the EU leaders to wrest total control for once an for all of the financial system in Europe.

Ivanovich's picture

Well, it's a good thing EUR/USD just spiked then.  All is good.

Edward Fiatski's picture

Gosh, do you want to see te EUR at parity, when they announce Yuropean QE in June? :) Have to provide some buffer!

machineh's picture

'the calmest period in financial markets since 2011'

Wow, are we supposed to be impressed?

luckylongshot's picture

Well if its a choice between suffering under the tyranny of zombie banks or liberation by destroying them, then this a positive development. Now if somehow Eurozone countries can pass laws cancelling all debt on the basis of no consideration, reclaim the right to issue money and ensure this remains owned by the public indefinitely the future would look a lot better than it does today.

DutchDude's picture

I have an umbrella for the shitstorm that is heading this way.

It's called; not having any debt what so ever, renting a cheap but nice appartement and only keep a bit of money left in the banks to pay for the montly bills

And yes;  sleep well, thank you

orangegeek's picture

Wow!!!  Fantastic!!!  Stupendous!!!  Excellente!!!!


More bullish news!!!!

q99x2's picture

We'll help them fight their globalist problem it they help us. The globalist exchange program. I like the sound of that.

Jason T's picture

Oh, that it may not be premature!” - Jack London, Iron Heel