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Did Another European Bank Just Lose LTRO Eligibility?

Tyler Durden's picture




 

Back on the 11th of May, something very curious happened: the ECB's line item 5.2 from its "Consolidated financial statement of the Eurosystem", or in other words, the LTRO money handed out to various European banks, dropped by €10.8 billion. There is one problem with this: this number is not allowed to decline. Or technically, if it does, it means something is wrong.

This is how Reuters explained the first instance of a material decline from May 4: "An early repayment of 11 billion euros of low cost funding to the ECB last week may be due to a bank losing its eligibility as a counterparty or a shortage of collateral, underscoring concerns about the general health of the banking sector. The European Central Bank's weekly financial statement showed that 10.8 billion euros ($14 billion) of longer-term refinancing operations (LTROs) were repaid last week before maturity. This is unusual because banks are not permitted to repay such funds early. There are exceptions for the December and February three-year funding operations but even those officially cannot be repaid before one year has passed. "When pledged collateral becomes ineligible and the counterparty cannot come up with a replacement ... cash out of the open market operations has to be paid back," said Commerzbank rate strategist Benjamin Schroeder in a research note. "A case where an institution itself loses its status as ECB counterparty is also conceivable." According to the ECB's website, the central bank's counterparty eligibility criteria include being subject to the Eurosystem's minimum reserve system and being "financially sound".

Well, minutes ago the ECB just reported its latest May 25 weekly update, and the number was... a €21.4 billion drop.

Chart: BBG

Which begs the question: just which bank got kicked out by the ECB, which is well known to accept the worst of the worst when it comes to collateral, just how bad is the collateral situation in Europe if banks can't even be LTRO eligible, and just what will be the systemic implications if said bank is unable to fund itself in the open market which as everyone knows by now in Europe, is completely and thoroughly frozen?

And for those asking, here is the ECB's Emergency Liquidity Assistance (ELA) timeline:

 

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Tue, 05/29/2012 - 10:33 | 2471588 the 300000000th...
the 300000000th percent's picture

That outta push the dow up another 200 pts

Tue, 05/29/2012 - 11:06 | 2471728 jus_lite_reading
jus_lite_reading's picture

>>"That outta push the dow up another 200 pts"<<

Rumors of China easing BIG time and QE4 as a certainty help pump up the ponzi...

PS... HSBC... shhhhhhhhhh

Tue, 05/29/2012 - 11:34 | 2471844 Bastiat009
Bastiat009's picture

And gold way down. They will manage to ruin all the central banks in the world when the euro (and gold) collapses for good.

Tue, 05/29/2012 - 11:38 | 2471864 eclectic syncretist
eclectic syncretist's picture

Bank runs = rejection of banks = rejection of entire polical systems build upon a foundation of debt financing

This should lead to the rise of politicians who are vocally anti-bank.  Big changes are brewing.  There is a limit to how much cyber money can be created before the system irretrievably collapses, and while no one knows exactly where that point is, it's becoming pretty obvious that we are getting closer, and closer, and closer.

Ron Paul anyone?

Tue, 05/29/2012 - 12:27 | 2472118 JeffB
JeffB's picture

Unless we get some mega event to push enough delegates to vote in Ron Paul at the Republican convention, or to convince him to run as an independent, and I think those are both very long odds, I don't think he'll ever make it.

But maybe his ideas will gain enough traction to have the major impact that is needed. Unfortunately, I don't see that happening BEFORE any major disaster.

 

Tue, 05/29/2012 - 10:33 | 2471590 falak pema
falak pema's picture

I think its JP Morgan...you know the bank from across the pond!

Tue, 05/29/2012 - 10:34 | 2471593 Cognitive Dissonance
Cognitive Dissonance's picture

"Or technically, if it does, it means something is wrong."

There is nothing wrong. Ignore all that you see and hear. You have just crossed over into the Twilight Zone.

http://www.youtube.com/watch?v=NzlG28B-R8Y

Tue, 05/29/2012 - 10:54 | 2471686 bigdumbnugly
bigdumbnugly's picture

bailouts?    ltro's?    qe?     op twist?

 

what could possibly be wrong...

Tue, 05/29/2012 - 10:36 | 2471600 John Ford Kennedy
John Ford Kennedy's picture

Captain,Mario D. just lowered the counterparty requirement. No worry. Everything is fixed.  

Tue, 05/29/2012 - 10:37 | 2471605 101 years and c...
101 years and counting's picture

today has the same feel as nov 28, 2011.  euro banks were imploding and ben gave advance notice to the banks he was about to bail out europe with the USD swaps, which werent announced until nov 30.

 

Tue, 05/29/2012 - 10:59 | 2471708 Vince Clortho
Vince Clortho's picture

Bernanke, always thinking of the US Taxpayer first.  What a guy!

Tue, 05/29/2012 - 10:38 | 2471609 achmachat
achmachat's picture

does this happen when a bank gets nationalized?

e.g. in Spain?

Tue, 05/29/2012 - 10:44 | 2471638 Doubleguns
Doubleguns's picture

That would be my vote. Nationalized is not financially sound. Any bank not financially sound means "no soup for you".

Tue, 05/29/2012 - 10:42 | 2471623 gatorengineer
gatorengineer's picture

Lets get the proper spin on this "21.4B surge in European LTRO funding capability"....... Please make these stories easier for the Algos to process....

Tue, 05/29/2012 - 10:47 | 2471645 Saro
Saro's picture

"ECB paid back ahead of schedule; green shoots!"

Tue, 05/29/2012 - 10:52 | 2471678 resurger
resurger's picture

Tuesday: Party

Wedensday: Party

Thursday: Party

Friday: Party

Party Party Party

Tue, 05/29/2012 - 11:14 | 2471763 francis_sawyer
francis_sawyer's picture

Every day I'm shufflin'

Tue, 05/29/2012 - 23:31 | 2474135 StychoKiller
Tue, 05/29/2012 - 10:44 | 2471635 the 300000000th...
the 300000000th percent's picture

Better rush in to buy treasuries, bullish for USSA

Tue, 05/29/2012 - 11:00 | 2471711 Poetic injustice
Poetic injustice's picture

Gee, they can finally set income on -10% nominal on treasuries.

Tue, 05/29/2012 - 10:44 | 2471639 CreativeDestructor
CreativeDestructor's picture

Everybody checks to Fed. Fed comes up with 2 trn non fungible non lossabe dollars.

Tue, 05/29/2012 - 10:44 | 2471641 LongSoupLine
LongSoupLine's picture

 

 

 

It means banks are well capitalized and we can can now resume full recovery retard programming on CNBS...oh, wait, that programming never ceased.

Tue, 05/29/2012 - 10:48 | 2471648 valkir
valkir's picture

http://www.youtube.com/watch?v=RORPpFL21dM

Just discover this movie.Hope is interesting.With english subtitles.

Tue, 05/29/2012 - 10:49 | 2471659 CvlDobd
CvlDobd's picture

Don't worry people. Probably just a small bank like Santander. Not systemically important. This is anti bailout progress here! Should be goo for 20 more ES points. To the moon Alice!

Tue, 05/29/2012 - 10:50 | 2471662 SheepDog-One
SheepDog-One's picture

That cant be, we got high Hopiums for QE now! 

Tue, 05/29/2012 - 10:54 | 2471689 Legolas
Legolas's picture

The market is on psychotrophic drugs this morning.  Up 1.23% at 10:53 AM.  Absolutely unbelievable !!

Tue, 05/29/2012 - 11:31 | 2471825 The Monkey
The Monkey's picture

Why are you surprised? When you get a 7% correction in prices and a lot of bad news is foating around, it's perceived as "priced in". Earnings momentum is still there, for the time being.

We are subject to very large retracements with all this cheap money flopping around. Use it to your advantage.

Tue, 05/29/2012 - 10:52 | 2471677 defn8Dog
defn8Dog's picture

Spanish cajas took in lots of LTRO funds before they were rolled up into Bankia.  Nationalizatin by the Spanish govt may have caused those LTRO loans on ECB books to go "poof" or at least move somewhere else.   Think:  Cat in the Hat Comes Back... many little cats hiding under a hat and a spreading pink stain.

Tue, 05/29/2012 - 10:55 | 2471693 bigwavedave
bigwavedave's picture

Bankia --> Simple

Tue, 05/29/2012 - 11:07 | 2471732 Augustus
Augustus's picture

Bankia would sure be my first guess.  Bank restates and reports losses rather than profits, requires 20 billion in a govt. recap, what more would be required to make them inelligible or indicate that the bank is unsound?

Tue, 05/29/2012 - 10:58 | 2471704 emersonreturn
emersonreturn's picture

off topic (sort of) but everything is so interconnected and mucky i'm not convinced it isn't somewhat/somehow relevant to the general indigestion...please, does anyone have ideas regarding the ever unruffled tony blair and his heckler? the heckler accused tony blair of being paid off by JPMorgan...or at least money mysteriously drifted through JPM?

Tue, 05/29/2012 - 11:01 | 2471717 Freebird
Freebird's picture

Yes the ECB just switched on their shredder

Tue, 05/29/2012 - 11:15 | 2471767 columbo
columbo's picture

WHAT AM I MISSING OTHER THAN THE MARKET CLIMBS A WALL OF WORRY AND HORRIBLE ECONOMIC DATA MEANS FED TO THE RESCUE AGAIN.  IS IT AS SIMPLE AS THAT?????

Tue, 05/29/2012 - 11:37 | 2471856 The Monkey
The Monkey's picture

Markets are oversold, worldwide. They need to burn off this condition. Expect a deep retracement.

Tue, 05/29/2012 - 11:20 | 2471779 jerry685
jerry685's picture

This is going to blow up....the fuss is long enough to last untill about Dec...max

If we are lucky........or so they say..

History is repeating itself right before our eyes...Inflation cycle / deflation ?

This time it is different...yea right !

 

Choose wisely....probably the most important desision in our life time

Tue, 05/29/2012 - 11:27 | 2471802 Bastiat009
Bastiat009's picture

The euro=gold trade is alive and well, regardless of the news or the other markets. Euro down, gold down.

It still doesn't make much sense but it is amazingly true.

Tue, 05/29/2012 - 11:28 | 2471812 q99x2
q99x2's picture

The animals are out of their cages and running wild in the zoo. Ice-nine is crackling as it  criss-crosses its way up the outside of the south shore wall toward the field where a rhino's got the zookeeper trapped up a tree.

Tue, 05/29/2012 - 11:37 | 2471859 HungrySeagull
HungrySeagull's picture

Stupid idiot Rhino. Should have pushed the tree down.

I know one thing that will snap the market like a dried out twig.

A nuclear strike somewhere important.

Tue, 05/29/2012 - 11:47 | 2471904 HungrySeagull
HungrySeagull's picture

I have a picture of another zookeeper watering the Desert with a garden hose.

Ok, ok, ok... it was in Hershey Zoo at the Reptile building.

Tue, 05/29/2012 - 12:39 | 2472169 Mitzibitzi
Mitzibitzi's picture

"A nuclear strike somewhere important."

In related news, the Olympic torch just passed by here. Never seen so many cops on one small High Street! Wouldn't want anything to happen to it before the big day, now would we!

My backup guesses are Portland and Atlanta - something is ticking in the back of my mind that won't go away regarding those two cities. There's just something... odd... about the frequency and tone of mentions of them in the media and online, dating back a couple of years - but nothing I can actually pin down. Anyone else picked up a weird vibe about them???

Tue, 05/29/2012 - 11:38 | 2471866 insanelysane
insanelysane's picture

VAPORIZED!

Tue, 05/29/2012 - 12:19 | 2472072 Jabblue
Jabblue's picture

Doesnt this just about explain the larger Bankia bailout figures that surfaced.  19B Europees + this 21B Europees total bailout needed for bankia 40B europees

 

Tue, 05/29/2012 - 12:25 | 2472105 rockraider3
rockraider3's picture

This is bad news, but at least there are no bank runs going on anywhere.

Tue, 05/29/2012 - 14:28 | 2472756 Cupid Stunt
Cupid Stunt's picture

Xerox machine. Filing cabinet. Stapler.

Who said we have no collateral left ?

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