ECB Further Eases Collateral Terms

Tyler Durden's picture


Two weeks ago, the ECB, which is now largely expected to cut rates by at least 25 bps imminently, announced it was aggressively expanding the eligible collateral pool of worthless "stuff" it would accept at face value in exchange for fresh EUR bills, in essence engaging in clear cut money printing with the footnote that it was really a loan. The only problem is the loan quality is absolutely worthless and the ECB knows this. Hence money for nothing. Today, the ECB has released another announcement on collateral eligibility, saying that "counterparties participating in Eurosystem credit operations should be allowed to increase current levels of own-use of government-guaranteed bank bonds subject to the ex-ante approval of the Governing Council in exceptional circumstances." However, lest it be seen as merely the latest confirmation that Europe no longer has money good assets, and the ECB is merely encouraging banks to pledge anything they can get their hands on in order to obtain a short-term liquidity injection, it also added the following rider: "[counterparties] may not submit such bonds or similar bonds issued by closely linked entities as collateral for Eurosystem credit operations in excess of the nominal value of these bonds already submitted as collateral on the day this Decision enters into force." But before someone takes this to mean that the ECB actually cares what "assets" on its balance sheet make back its now record €3+ trillion in liabilities, it added Rider B: "Governing Council may decide on derogations from the requirement laid down in paragraph 1." Translated: the free for all rehypothecation race is on, and probably in its last lap, as once any and all collateral is already pledged, the ECB's only hope will be to allow already hypothecated collateral to be rehypothecated. Something which in a non-banana republic would have cost Jon Corzine his job.

From Market News

The European Central Bank Governing Council on Tuesday adopted a further change to ECB rules on the eligibility of collateral for Eurosystem refinancing operations.

In its preamble to the new rule, the Governing Council said “counterparties participating in Eurosystem credit operations should be allowed to increase current levels of own-use of government-guaranteed bank bonds subject to the ex-ante approval of the Governing Council in exceptional circumstances.”

As a result, the Governing Council adopted the following change to its collateral rules, effective immediately:

“The following Article 4b is inserted in Decision ECB/2011/25:

Acceptance of government-guaranteed bank bonds

1. Counterparties that issue eligible bank bonds guaranteed by an EEA public sector entity with the right to impose taxes may not submit such bonds or similar bonds issued by closely linked entities as collateral for Eurosystem credit operations in excess of the nominal value of these bonds already submitted as collateral on the day this Decision enters into force.

2. In exceptional cases, the Governing Council may decide on derogations from the requirement laid down in paragraph 1. A request for a derogation shall be accompanied by a funding plan.”

Source: ECB

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Tue, 07/03/2012 - 11:55 | 2584113 idea_hamster
idea_hamster's picture

It's ALLLLL good, now!

Tue, 07/03/2012 - 11:58 | 2584129 The Monkey
The Monkey's picture

50 BPS rate cut is not priced in. On the way to 1400...

Tue, 07/03/2012 - 12:00 | 2584142 Divided States ...
Divided States of America's picture

This is great for them but whats in it for me? I dont see the banks easing my credit terms for the credit card debt, auto loan etc.

Tue, 07/03/2012 - 12:51 | 2584329 Stoploss
Stoploss's picture

Yes, but will they take spiderman towels and used condoms??

Tue, 07/03/2012 - 22:28 | 2585838 ZeroAvatar
ZeroAvatar's picture

......and Unicorn Piss and Wizard Farts and...................

Tue, 07/03/2012 - 11:55 | 2584115 veyron
veyron's picture

Soon we'll find out that there's no gold left in europe ...

Tue, 07/03/2012 - 11:55 | 2584117 gmrpeabody
gmrpeabody's picture

My PMs must have seen this coming...

Tue, 07/03/2012 - 11:56 | 2584119 Abraxas
Abraxas's picture

The confidence is the key, and they are erroding it rapidly.

Tue, 07/03/2012 - 11:56 | 2584122 Vincent Vega
Vincent Vega's picture

Just a dog chasing it's tail.

Tue, 07/03/2012 - 20:44 | 2585683 anarchitect
anarchitect's picture

More like an ouroboros.

I want to become an ECB counterparty, buying up crap assets, giving them to the ECB at full face value, and using the proceeds to buy beaten up assets with lots of upside, like precious metal mining equities.

Tue, 07/03/2012 - 11:57 | 2584126 EscapeKey
EscapeKey's picture

Soon they'll even accept... *gasp*... Euro notes!

Tue, 07/03/2012 - 12:15 | 2584204 pods
pods's picture

Tulips and Beanie Babies FTW!

Tue, 07/03/2012 - 22:29 | 2585842 ZeroAvatar
ZeroAvatar's picture


Tue, 07/03/2012 - 11:58 | 2584127 LawsofPhysics
LawsofPhysics's picture

Are they still accepting used condoms as collateral?  My guess is there are a few more after the summit.

Tue, 07/03/2012 - 12:18 | 2584212 Jack Sheet
Jack Sheet's picture

You probably need a certificate on who the user was.

Tue, 07/03/2012 - 11:58 | 2584132 Yen Cross
Yen Cross's picture

 That explains the "farcical" ramp up in the eur/usd. The shit wagon just backed up @ the ECB unloading dock!

Tue, 07/03/2012 - 11:59 | 2584133 Nonexistent Uni...
Nonexistent Uninvented God's picture

Yo Dawg, I heard you like some debt with your debt. So I'll give you debt for your debt to add to the debt.

Tue, 07/03/2012 - 11:59 | 2584134 BlueStreet
BlueStreet's picture

Don't Stop Now Boys


/Hawk Harrelson





Tue, 07/03/2012 - 12:00 | 2584140 firstdivision
firstdivision's picture

...annnd the EUR takes of on the news that they will print....sure, makes sense if you ignore supply/demand/reality.

Tue, 07/03/2012 - 12:01 | 2584149 surf0766
surf0766's picture

Does anyone know where I can get a large quantity of 5 lbs bags?

Tue, 07/03/2012 - 12:02 | 2584152 Dr. Engali
Dr. Engali's picture

Can I pledge my garage sale stuff for let's say...oh...... a couple hundred thousand?

Tue, 07/03/2012 - 12:24 | 2584154 Sakka
Sakka's picture

I was immediately bored by my original post in anticipation of the "for collateral" parade.


Extinction Level Event Nibiru Is Near

Sell everything into this rally and buy pure physical silver (for collodial), high ground, food, water/purification, ammo.

Destroyer, Red Kachina, Wormwood, etc.

Check out the research

Tue, 07/03/2012 - 13:31 | 2584474 1fortheroad
1fortheroad's picture

I was just doing some research on that.

I hope I'm around long enough to see it.

Surviving it, that's another story.

Really need all that you list and be underground when the winds come.


Tue, 07/03/2012 - 15:15 | 2584902 Sakka
Sakka's picture

Thanks, I should add radiation fallout shelter/protection/deconamation gear/pills, this is WW3 in Syria and it will go nukuliar.


I once heard that the Book of Revelation is a "script", ostensibly as opposed to devine revelation, whatever you all may choose to believe, I am increasingly drawn to comparisons with how events are playing out.


I have said it before; the Illuminati have to tell us what is happening somehow, it is the "law", and this is why movies like 2012 are out there, except in reality the solar flares are caused by the "the planet of the crossing", Nibiru, Planet X, and the crust catastrophies are caused by the magnetic pole of the earth being yanked over as the even larger magnet of planet Nibiru passes.


For men who understand the opportunity of an evolutionary "bottleneck", this is it, "As in the Days of Noah," it's good to be Noah guys.


"And when the thousand years are finished, Satan shall be loosed out of his prison, and shall come forth to deceive the nations which are in the four corners of the earth, Gog and Magog, to gather them together to the war: the number of whom is as the sand of the sea."


See its simple, you just to have to survive the extinction level event caused by Nibiru's passing, then the reign of the beast, be found worthy before god, and your seed will spread to the four corners of the earth and be as the sand of the sea by the end of the "mellenial reign".


God tells us in advance who the remnant will be; Gog and Magog, the Scythians, the Sakyans.  Just tell your kids in advance not to let your descendants go the war and encompase the "beloved city" of the saints.  It seems that ends poorly for everyone who goes.

Tue, 07/03/2012 - 12:04 | 2584159 crawl
crawl's picture

This should be good for a big ramp up on the ES on Thursday.  ES back up to 1400, with hopes of more liquidity injection from the CBs around the world.  Amazing.  What's next for collateral acceptance?  Used toilet paper????

When the system begins to crash, it will be very ugly.  But as long as the printing presses have steady supply of linen paper and ink, no worries.

Tue, 07/03/2012 - 12:04 | 2584162 Boilermaker
Boilermaker's picture

I have a 10 pound bag of dog shit to post.

How much can I get for that?

Tue, 07/03/2012 - 12:11 | 2584195 Peter Pan
Peter Pan's picture

Hard to say. Put it on Ebay.

Tue, 07/03/2012 - 12:21 | 2584221 Jack Sheet
Jack Sheet's picture

email Draghi first

Try "eligible assets data base" for starters

Tue, 07/03/2012 - 13:05 | 2584375 SimpleSimon
SimpleSimon's picture

Wellll, they are hungry for good collateral you know....let us know, I have a big dog...

Tue, 07/03/2012 - 12:05 | 2584163 LeisureSmith
LeisureSmith's picture

Hey, i have a fake Breitling watch that doesn't work, how many million Euro's can i get for that? 

Tue, 07/03/2012 - 12:08 | 2584180 crawl
crawl's picture

In France, after tax, not much.

Tue, 07/03/2012 - 22:36 | 2585851 ZeroAvatar
ZeroAvatar's picture

Same as my Faux-lex, then. LOL

Tue, 07/03/2012 - 12:06 | 2584168 radicall
radicall's picture

Well if they can accept Ronaldo's contract as collateral, I don't really know where it stops. I guess Spain and Italy could always put up their entire soccer teams as collteral for ECB to fund them for the entire year?

Tue, 07/03/2012 - 12:10 | 2584193 LawsofPhysics
LawsofPhysics's picture

Well, they are real revenue-generating assets.

Tue, 07/03/2012 - 12:11 | 2584197 LULZBank
LULZBank's picture

Ah well, atleast they have something more than just empty promises.

Tue, 07/03/2012 - 12:18 | 2584213 chinaguy
chinaguy's picture

I was wondering what was pushing Au Ag up

Tue, 07/03/2012 - 12:25 | 2584239 eclectic syncretist
eclectic syncretist's picture

Great!  Now the banks can go from insolvent to irretrievably insolvent.  Every one will be like a mini version of your local government.  When do ordinary citizens get in on the deal?

Tue, 07/03/2012 - 12:35 | 2584275 LeisureSmith
LeisureSmith's picture

I spy a new hit TV-show : Retarded Pawn Stars eurozone edition.... Customer: Hey i want to pawn my 2011 Bugatti Veyron. I got in a crash and totaled it something feirce, then i set it on fire and dumped it into a fjord, how much? RPS: I dont know man, let me call my guy Mario at the ECB...... He says he cant go any lower than 5 Billion Euros, Is that cool man? Customer: I was thinking moore like 3,5 man. etc.etc. Your busting my balls..etc. They settle on 4 Billion.

Tue, 07/03/2012 - 12:38 | 2584282 No Euros please...
No Euros please we're British's picture

I have at least a million £ worth of Connaught and Jarvis shares to pledge as collateral, should be worth at least 5 euros on the £. How about it Mario?

Tue, 07/03/2012 - 12:39 | 2584287 Ned Zeppelin
Ned Zeppelin's picture

Are hypothecations of assets under these type of ECB (and for that matter Fed) operations "non-recourse" loans?

Tue, 07/03/2012 - 12:53 | 2584336 insanelysane
insanelysane's picture

Can we by CDS on the phony collateral?

Tue, 07/03/2012 - 13:03 | 2584371 SimpleSimon
SimpleSimon's picture

Rehypothecation to the power of infinity....mankind is saved!!!

Tue, 07/03/2012 - 13:05 | 2584374 Yen Cross
Yen Cross's picture

 The ECB thinks that somehow accepting junk collateral, as opposed to outright printing, fits into their ponzi sterilization theme.

 The fact is European banks have sold all their marketable assets, and the rest of the world doesn't want the junk, no matter what the interest paid is. After all, it doesn't take a rocket pilot to see what happened with Greek debt subordination!

Tue, 07/03/2012 - 13:06 | 2584379 Bansters-in-my-...
Bansters-in-my- feces's picture

"Exceptional Derogation Bitchez".....

Tue, 07/03/2012 - 13:10 | 2584392 Bansters-in-my-...
Bansters-in-my- feces's picture



Get your collaterized popcorn here...!

ECB's famous last words.

Tue, 07/03/2012 - 13:30 | 2584469 twocents
twocents's picture

I just farted - Where's MY money!?

Tue, 07/03/2012 - 14:31 | 2584763 allbetsoff
allbetsoff's picture

Will it all go BANG or just hiss out slowly???

Tue, 07/03/2012 - 14:36 | 2584781 Grand Supercycle
Grand Supercycle's picture

Rally Warning Confirmed...

As mentioned earlier, further equity strength and USDX weakness expected this year according to my analysis.

Tue, 07/03/2012 - 14:40 | 2584795 genr8n
genr8n's picture

Where's Moody's when you need them. Oh, no wait....someone paid them off.

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