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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AngryGerman's picture

DUMP ALL SHIT ON THE ECB! bullish!

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.

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 ...

EscapeKey's picture

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

Spigot's picture

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

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
Spigot's picture

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

Smiddywesson's picture

Slowly herding the europeans into a printing is acceptable mindset.

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????

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/

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.

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

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! 

Vergeltung's picture

"progress"!?! that's funny.

 

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! ".

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

Fips_OnTheSpot's picture

Gold +13$ -- on that?

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/

Fips_OnTheSpot's picture

Stupid me.. and here comes the backlash

Oh regional Indian's picture

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

ORI

hugovanderbubble's picture

BULLLLLLLLLLISHHHHHHHH:))))

Morning Angry

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.

AngryGerman's picture

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

earnulf's picture

Rinse and Repeat as needed to attain PM's

economicminor's picture

step 3 > use the proceeds for bonuses

cossack55's picture

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

jonan's picture

yay, market will do a manbearpig bounce today

spanish inquisition's picture

 

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

ECB DECLARES

VICTORY!

Details to follow

midgetrannyporn's picture

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

 

fed, ecb = central bank pawn and thrift.

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.

GMadScientist's picture

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

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!

RobD's picture

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

RichardENixon's picture

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

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?

PulauHantu29's picture

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

Coldfire's picture

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

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.

DarkStarDog's picture

Run for your lives, be afraid very afraid. LOL

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!

MFL8240's picture

Nothing short of purging this debt will work.

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)

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.

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.

Bansters-in-my- feces's picture

Zero Hedgers all know liqSqiddity don't fix INSOLVENCY.

LiqSqiddity,is what runs through "Goldman Squid Sachs arteries

Sudden Debt's picture

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