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ECB Confirms Shadow Banking System In Europe In Tatters

Tyler Durden's picture




 

Yesterday we reported that the freeze in the Europe repo, asset backed paper and money markets is a broad indication that the shadow banking system - the primary conduit to broader disintermediated financial stability or in this case distress - on the continent has now locked up, which means that the three traditional bank transformations of risk, maturity and liquidity now have to be undertaken by the very non-shadow banks whose existence relies day to day on the ECB and the Fed, without any 3rd party market intermediaries (incidentally we are looking forward to tomorrow's quarterly update of the US shadow banking system and will post promptly). Today, the ECB has just confirmed our worst fears, in that the shadow situation is likely worse than expected. From Bloomberg:

  • ECB SAID TO CONSIDER LOOSENING RULES ON ABS AS COLLATERAL
  • ECB SAID TO PLAN LOOSENING OF COLLATERAL CRITERIA FOR LOANS
  • ECB SAID TO CONSIDER TWO-YEAR LOANS FOR BANKS
  • ECB SAID TO LOOK AT ALLOWING MORE UNCOVERED BONDS AS COLLATERAL

Incidentally none of these announcements were unexpected: Goldman predicted they would all happen (odd how that happens).

More from Bloomberg:

The European Central Bank may announce a range of measures tomorrow to stimulate bank lending, said three euro-area officials with knowledge of policy makers’ deliberations.

 

Options on the table include loosening collateral criteria so that institutions have more access to cheap ECB cash and offering them longer-term loans to grease the flow of credit to the economy, said the officials, who spoke on condition of anonymity because the discussions are private. Two said an interest rate cut is likely, with only the size of the reduction to be determined for the monthly decision tomorrow.

And here is what the market wanted NOT to hear:

The ECB is focusing on getting banks lending again rather than increasing its government bond purchases to fight Europe’s debt crisis. The central bank’s insistence that governments take measures to restore investor confidence appears to have paid dividends, with Italian and Spanish yields plunging after Germany and France agreed to move the 17-nation euro area toward a fiscal union.

And more:

The ECB has indicated it will act to prevent a credit shortage as this falls within its monetary policy remit.

 

Policy makers may seek to broaden the pool of eligible collateral for ECB loans by loosening rules governing the use of asset-backed securities, the officials said. They may also increase the amount of uncovered bank bonds that can constitute a lender’s collateral portfolio from the current 10 percent limit, they said.

 

The ECB is already lending banks as much money as they want against eligible collateral for periods of up to a year. It is likely to add two-year loans to its arsenal, two officials said.

 

While a three-year loan has been discussed, it is unlikely at this stage, they said.

 

One official said longer-term loans might encourage banks to lend to companies and households, and they would also help financial institutions meet new Basel rules on holding longer- term liquidity.

As a reminder: liquidity stopgaps only make the insolvency gangrene even worse as it allows banks to NOT address the underlying issues and mask the symptoms. But everyone knows that by now... Or should.

 

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Wed, 12/07/2011 - 09:51 | 1954444 AngryGerman
AngryGerman's picture

DUMP ALL SHIT ON THE ECB! bullish!

Wed, 12/07/2011 - 09:55 | 1954459 ratso
ratso's picture

The ECB is finally starting to assume the role of the Fed and stepping out of its previously narrow self definition.  This is progress.

Wed, 12/07/2011 - 09:57 | 1954464 Chris Jusset
Chris Jusset's picture

"ECB SAID TO PLAN LOOSENING OF COLLATERAL CRITERIA FOR LOANS"

 

This is deja vu all over again ... The last time we had this script, things didn't end too well ...

Wed, 12/07/2011 - 10:02 | 1954478 EscapeKey
EscapeKey's picture

Well, that's clearly nonsense. The bankers got their bonuses.

Wed, 12/07/2011 - 10:13 | 1954523 Spigot
Spigot's picture

Equal to 8% of M1 in 1 year to boot!

Wed, 12/07/2011 - 10:27 | 1954565 TruthInSunshine
TruthInSunshine's picture

Slightly Off Topic, but Timmay just sealed the death of the with a wet, sloppy kiss, as only the Jeetner can definitively do. From The New York Times (virtuous disseminator of Goebbelfied news):

Geithner Sees 'Progress' in Efforts to Shore Up Euro
Wed, 12/07/2011 - 13:49 | 1955404 Spigot
Spigot's picture

Ugh! My mind has been polluted by your simile. I have to go have my brain washed now.

Wed, 12/07/2011 - 10:04 | 1954483 Smiddywesson
Smiddywesson's picture

Slowly herding the europeans into a printing is acceptable mindset.

Fri, 12/09/2011 - 04:36 | 1962118 whirlybird rules
whirlybird rules's picture

Whole week has been a sick show - just like the last 10 years.  Betting with the caps and kings has been fruitful.  Can they pull it off again... without the Germans????

Wed, 12/07/2011 - 10:00 | 1954471 Oh regional Indian
Oh regional Indian's picture

Beauty is when the compass points directly to the city of the square mile of longdong.

See what I did there? Bobbitification straight ahead we hope, hmmmm? Still cannot believe they will inflict pain on whites BEFORE the brown peeple have been shafted with a thorny branch once again.

Keep looking for signs of the Asian Contagion striking again. It could happen.

ORI

/the-plan/

Wed, 12/07/2011 - 10:15 | 1954532 LawsofPhysics
LawsofPhysics's picture

ORI, normally I would agree with you, but the asians, and China in particular is well versed in crushing social uprisings.  They are communist for christ sake and will happily sacrafice a few thousand individuals for the benefit of the state.  Might want to clarify your positions as the pacific islanders are very different people.

Wed, 12/07/2011 - 10:28 | 1954567 Oh regional Indian
Oh regional Indian's picture

LOP, I hear you. I'm actually speaking of a 1997 style contagion that is purely finance triggered. So easy to suck credit back from bloated BRICS. India woudl collapse like a punctured ball00n if credit, Foreign Direct Investment etc. dried up. In a heartbeat.

ORI

Wed, 12/07/2011 - 10:35 | 1954586 falak pema
falak pema's picture

Poor Reliance, Poor Tata, Poor Mittal, Goodbye...to all that. Passage to India wil no longer be first class trip on maharaja train! 

Wed, 12/07/2011 - 10:01 | 1954473 Vergeltung
Vergeltung's picture

"progress"!?! that's funny.

 

Wed, 12/07/2011 - 10:12 | 1954518 Spigot
Spigot's picture

So yesterday. Obviously the Euros failed to attend the seminars given by the USFederal Reserve: " How to eat shit and learn to love it! ".

Wed, 12/07/2011 - 11:33 | 1954836 TzaristBondHolder
TzaristBondHolder's picture

They are doing what they were meant to......just watch this video explaining the banks in Europe http://inkom.com.au/blog/how-financial-system-works

Wed, 12/07/2011 - 09:53 | 1954447 Fips_OnTheSpot
Fips_OnTheSpot's picture

Gold +13$ -- on that?

Wed, 12/07/2011 - 09:56 | 1954462 Oh regional Indian
Oh regional Indian's picture

Fips, are you implying correlation? In this day and age? Hah! Nice one. What a quaint concept.

Correlation.

ORI

/meet-the-press/

Wed, 12/07/2011 - 09:58 | 1954467 Fips_OnTheSpot
Fips_OnTheSpot's picture

Stupid me.. and here comes the backlash

Wed, 12/07/2011 - 10:01 | 1954474 Oh regional Indian
Oh regional Indian's picture

See? Ain't no such thing anymore, except in the minds of Men who Stare at Floats.

ORI

Wed, 12/07/2011 - 09:53 | 1954448 hugovanderbubble
hugovanderbubble's picture

BULLLLLLLLLLISHHHHHHHH:))))

Morning Angry

Wed, 12/07/2011 - 10:02 | 1954477 AngryGerman
AngryGerman's picture

morning. hung over?

Wed, 12/07/2011 - 09:53 | 1954449 EscapeKey
EscapeKey's picture

Step 1) Buy greek government bonds for pennies on the dollar.

Step 2) Pledge said government bonds as collateral, marked at par.

Wed, 12/07/2011 - 10:01 | 1954475 AngryGerman
AngryGerman's picture

...pssst. don't tell the secret plan that assures my bonus!

Wed, 12/07/2011 - 10:05 | 1954485 earnulf
earnulf's picture

Rinse and Repeat as needed to attain PM's

Wed, 12/07/2011 - 11:10 | 1954765 economicminor
economicminor's picture

step 3 > use the proceeds for bonuses

Wed, 12/07/2011 - 09:54 | 1954455 cossack55
cossack55's picture

In regards to GS, how is it a prediction when you are the policy maker?  Is it not just an announcement?

Wed, 12/07/2011 - 09:57 | 1954463 jonan
jonan's picture

yay, market will do a manbearpig bounce today

Wed, 12/07/2011 - 09:58 | 1954466 spanish inquisition
spanish inquisition's picture

 

Don't worry about the news, just keep pumping out headlines like

ECB DECLARES

VICTORY!

Details to follow

Wed, 12/07/2011 - 10:04 | 1954469 midgetrannyporn
midgetrannyporn's picture

The banks must need money otherwise they would just mark to myth.

 

fed, ecb = central bank pawn and thrift.

Wed, 12/07/2011 - 09:59 | 1954470 GOSPLAN HERO
GOSPLAN HERO's picture

The Twelve Days of Fascism

by Robert Hawes

On the first day of fascism,
Obama gave to me:
The status of detainee.

On the second day of fascism,
Obama gave to me:
Two sneak-peek searches,
And the status of detainee.

On the third day of fascism,
Obama gave to me:
Three raw milk raids,
Two sneak-peek searches,
And the status of detainee.

On the fourth day of fascism,
Obama gave to me:
Four no-fly lists,
Three raw milk raids,
Two sneak-peek searches,
And the status of detainee.

On the fifth day of fascism,
Obama gave to me:
Five waterboards,
Four no-fly lists,
Three raw milk raids,
Two sneak-peek searches,
And the status of detainee.

On the sixth day of fascism,
Obama gave to me:
Six FEMA coffins,
Five waterboards,
Four no-fly lists,
Three raw milk raids,
Two sneak-peek searches,
And the status of detainee.

On the seventh day of fascism,
Obama gave to me:
Seven TSA gropings,
Six FEMA coffins,
Five waterboards,
Four no-fly lists,
Three raw milk raids,
Two sneak-peek searches,
And the status of detainee.

On the eighth day of fascism,
Obama gave to me:
Eight secret courts,
Seven TSA gropings,
Six FEMA coffins,
Five waterboards,
Four no-fly lists,
Three raw milk raids,
Two sneak-peek searches,
And the status of detainee.

On the ninth day of fascism,
Obama gave to me:
Nine endless wars,
Eight secret courts,
Seven TSA gropings,
Six FEMA coffins,
Five waterboards,
Four no-fly lists,
Three raw milk raids,
Two sneak-peek searches,
And the status of detainee.

On the tenth day of fascism,
Obama gave to me:
Ten healthcare mandates,
Nine endless wars,
Eight secret courts,
Seven TSA gropings,
Six FEMA coffins,
Five waterboards,
Four no-fly lists,
Three raw milk raids,
Two sneak-peek searches,
And the status of detainee.

On the eleventh day of fascism,
Obama gave to me:
Eleven tasers tasing,
Ten healthcare mandates,
Nine endless wars,
Eight secret courts,
Seven TSA gropings,
Six FEMA coffins,
Five waterboards,
Four no-fly lists,
Three raw milk raids,
Two sneak-peek searches,
And the status of detainee..

On the twelfth day of fascism,
Obama gave to me:
Twelve markets crashing,
Eleven tasers tasing,
Ten healthcare mandates,
Nine endless wars,
Eight secret courts,
Seven TSA gropings,
Six FEMA coffins,
Five waterboards,
Four no-fly lists,
Three raw milk raids,
Two sneak-peek searches,
And the status of detainee.

Wed, 12/07/2011 - 10:02 | 1954476 GMadScientist
GMadScientist's picture

ECB SAYS MAY CONSIDER CHEWING GUM AND RANDOM BITS OF FLUFF AS COLLATERAL AS WELL AS PENCIL SHAVINGS AND SAWDUST.

Wed, 12/07/2011 - 10:05 | 1954486 Oh regional Indian
Oh regional Indian's picture

:-) Funny!!!

ORI

Wed, 12/07/2011 - 10:17 | 1954540 Spigot
Spigot's picture

Hot Damn! I've got some stuff around here that would meet the definition, let's put together a bond or two, get our bank buddies to buy them then turn them over for that 'par' thing you were talking about. Finally this 'finance' thing is starting to make sense!

Wed, 12/07/2011 - 10:51 | 1954685 RobD
RobD's picture

Hold on let me check my belly button.....holy shit I'm RICH!

Wed, 12/07/2011 - 12:28 | 1955037 RichardENixon
RichardENixon's picture

I'm trying to find an investment bank to help me securitize my dryer lint.

Wed, 12/07/2011 - 10:04 | 1954482 ACP
ACP's picture

No need to worry. The Fed will just buy everything no one else wants. Hell, they're probably buying up the DAX at this very moment. Why should the ECB do anything when the Fed is more than willing to do it for them?

Wed, 12/07/2011 - 10:06 | 1954490 PulauHantu29
PulauHantu29's picture

Better wake Ben up. He might want to read this stuff.

Wed, 12/07/2011 - 10:11 | 1954493 Coldfire
Coldfire's picture

ECB ALSO SAID TO BE CONSIDERING ACCEPTING HOBO DIARRHEA AS COLLATERAL TO STAUNCH ERRORZONE CRISIS ONCE AND FOR ALL.

Wed, 12/07/2011 - 10:07 | 1954497 Imminent Collapse
Imminent Collapse's picture

The Shadow knows!

Wed, 12/07/2011 - 10:08 | 1954499 Paralympic Equity
Paralympic Equity's picture

September 14, 2008 | Federal Reserve Press Release

The Federal Reserve Board expands the list of eligible collateral for the PDCF to include any
collateral that can be pledged in the tri-party repo system of the two major clearing banks.
collateral that can be pledged in the tri-party repo system of the two major clearing banks.
Previously PDCF collateral had been limited to investment-grade debt securities. The Board also
expands the list of collateral accepted by TSLF to include all investment-grade debt securities and
increases the frequency of Schedule 2 TSLF auctions and total offering to $150 billion. The Board
also adopts an interim final rule that provides temporary exceptions to Section 23A of the Federal
Reserve Act to allow insured depository institutions to provide liquidity to their affiliates for assets
typically funded in the tri-party repo market.

 

December 19, 2008 | Federal Reserve Press Release

The Federal Reserve Board announces revised terms and conditions of the Term Asset-Backed
Securities Loan Facility (TALF). Among the revisions are an extension of TALF loans from
maturities of one year to three years and an expansion of eligible ABS collateral.

February 10, 2009 | Federal Reserve Press Release

The Federal Reserve Board announces that is prepared to expand the Term Asset-Backed
Securities Loan Facility (TALF) to as much as $1 trillion and broaden the eligible collateral to
include AAA-rated commercial mortgage-backed securities, private-label residential
mortgage-backed securities, and other asset-backed securities. An expansion of the TALF would
be supported by $100 billion from the Troubled Asset Relief Program (TARP). The Federal
Reserve Board will announce the date that the TALF will commence operations later this month.

Wed, 12/07/2011 - 10:10 | 1954506 DarkStarDog
DarkStarDog's picture

Run for your lives, be afraid very afraid. LOL

Wed, 12/07/2011 - 10:13 | 1954520 longonSpam
longonSpam's picture

And now, after a ten year hiatus we return you to regularly scheduled programming..

ITS MARK & FRANC IN THE MORNING BACK & BETTER THAN EVER!! Today Mark & Franc will be launching the World's Biggest Fiat Paper Airplane piloted by Bob's Big Boy dressed as Elvis Costello this time across the Channel. This time they swear it'll make it to Dover!

Wed, 12/07/2011 - 10:21 | 1954549 MFL8240
MFL8240's picture

Nothing short of purging this debt will work.

Wed, 12/07/2011 - 10:30 | 1954575 TheSpiritOfTheTimes
TheSpiritOfTheTimes's picture

I hope this fucking shit will soon explode.

Tried to put some money in an account today. Ironically the money wasn't mine, I was supposed to put it there for a friend.

Went to the local branch of his bank and they asked me for 3 Euros in order to deposit HIS money on HIS account. I left before I wanted to hurt anyone...

Imagine that. You give them money, so that they can do whatever they want with it AND ask you to pay for exactly that.

All you need to know about Germany (and most likely the rest of world):

Put a German (replace by any nationality) in a concentration camp. He will ask: "Can I pay with my VISA here?"

THIS SHIT'S GOT TO GO! (Jacque Fresco)

Wed, 12/07/2011 - 10:35 | 1954579 Bansters-in-my-...
Bansters-in-my- feces's picture

ECB says if you got bigs bags of consumers feces,they will take it as collateral.

All sizes and shapes welcome.

Wed, 12/07/2011 - 10:35 | 1954589 AccreditedEYE
AccreditedEYE's picture

Death to the (old) investment bank model. (GS, MS, JPM)

Long live the (new) investment bank model. (BX, KKR)

Change is happening before our eyes.

Wed, 12/07/2011 - 10:42 | 1954627 Bansters-in-my-...
Bansters-in-my- feces's picture

Zero Hedgers all know liqSqiddity don't fix INSOLVENCY.

LiqSqiddity,is what runs through "Goldman Squid Sachs arteries

Wed, 12/07/2011 - 10:46 | 1954653 Sudden Debt
Sudden Debt's picture

WE DON'T NEED COLLATERAL!! JUST PRINT IT AND WE'LL TAKE IT!

 

Wed, 12/07/2011 - 13:50 | 1955411 Spigot
Spigot's picture

You are such a fiat-lush!

Wed, 12/07/2011 - 10:58 | 1954716 jack stephan
jack stephan's picture

Danny Dalton: Some trust fund prosecutor, got off-message at Yale thinks he's gonna run this up the flagpole? Make a name for himself? Maybe get elected some two-bit congressman from nowhere, with the result that Russia or China can suddenly start having, at our expense, all the advantages we enjoy here? No, I tell you. No, sir! Corruption charges! Corruption? Corruption is government intrusion into market efficiencies in the form of regulations. That's Milton Friedman. He got a goddamn Nobel Prize. We have laws against it precisely so we can get away with it. Corruption is our protection. Corruption keeps us safe and warm. Corruption is why you and I are prancing around in here instead of fighting over scraps of meat out in the streets. Corruption is why we win.

 

2012 is shaping up to be "Beirut Rules"...........Is there any way you could say...zonk me out so I feel like I've been fishing?.. or something?

Wed, 12/07/2011 - 11:12 | 1954770 Captain Benny
Captain Benny's picture

amputation - Just cut off the banks that can't reasonably fund themselves and let the shit hit the fan.  They need to end the crisis and that means the big unwind.

Wed, 12/07/2011 - 12:54 | 1954931 ToNYC
ToNYC's picture

Did someone not read Kyle Bass' analysis?

http://www.youtube.com/watch?v=5V3kpKzd-Yw

 

Away from that I used Sherlock Holmes' rule to get there was a LBI moment with French banks the weekend before last.

Corzine in MF Global visited a black swan that rang the bell. Italy as a result is run not by democratically -elected PM, but a Eurocrat.

Shock Doctrine in full effect. Corzine is yet another pretext for the OneWorldOrder brought to you by losing control of money and selling out to private corporation debt money creators and providers.

Crash Corzine, what a handle.

Wed, 12/07/2011 - 12:33 | 1955054 YesWeKahn
YesWeKahn's picture

Bernanke knows how to fix it for good: turn on his printer. He bought a ton of ink during the black friday.

Wed, 12/07/2011 - 15:06 | 1955666 whoisjohngalt11
whoisjohngalt11's picture

http://heavenbounf.blogspot.com/2011/12/corruption-in-congress-secret-trading.html RON PAUL ONE OF THE FEW NOT DOING THIS POLITICAL INSIDER TRADING..

Do NOT follow this link or you will be banned from the site!