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ECB Margin Calls Surge And Basis-Swaps Plunge

Tyler Durden's picture


Despite the easing of collateral standards, ECB Margin Calls surged last week by their most in over 9 months (ex-Greece). As yields rose (and prices fell) pre-summit, so the collateral that European banks have lodged with the ECB fell in value and thus, the banks had to find cash to cover those margin calls. The rally from Friday may have eased that strain a little but today's give-back of all those gains (and in fact to a worse level) suggests that these margin calls will continue to rise and put further liquidity stress on cash-strapped European banks. Most critically, the ECB (while extending some of its collateral) reduced banks' ability to self-reference and post ponzi-bonds as collateral (i.e. a Spanish bank cannot get a government guaranteed issue off and then turn round and pledge it with the ECB). Between negative Swiss interest rates (and Denmark), stressed basis-swaps, and now rising ECB margin calls, things are going from bad to worse behind the scenes in Europe - no matter what reflexive perspective an equity market rally is telling you.

ECB Margin Calls have surged by the most since September this week (the large rise and fall in March is the Greek restructuring).

and at the same time liquidity stress is breaking down rapidly...


We wonder if this is the entire purpose of the panic levels at the EU Summit as without the ECB reducing its margin rules dramatically (which would be a NEIN from the Germans), we appear to have hit the limit on asset values for collateral.

This is yet another unintended consequence of the LTROs by which the most stressed banks used more of LTRO and pledged more of their government's debt with the ECB which is now stressed itself and implies a need for more cash to cover those shortfalls from the most-stressed banks...


Chart: Bloomberg

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Thu, 07/05/2012 - 11:56 | 2589134 Temporalist
Thu, 07/05/2012 - 12:02 | 2589146 The Monkey
The Monkey's picture

Buy you bastards!!! The restaurants are packed, cars are selling and a lot of bad news is priced in. iPhones are everywhere and look at Apple's multiples!

Thu, 07/05/2012 - 12:57 | 2589363 beaker
beaker's picture

And so gold has a down day when these collateral calls hit the news.  See the connection?

Thu, 07/05/2012 - 16:27 | 2590113 Bastiat009
Bastiat009's picture

Euro is down ... nuf ssaid.

Thu, 07/05/2012 - 12:16 | 2589137 LawsofPhysics
LawsofPhysics's picture

Any real surprise here?  With NIRP looming everywhere, I'd make the call as well.  Some money now is far better than nothing later.  

That reminds me, are treasuries paying down the debt yet?  Hey folks in the U.S.S.A, how's that 401k positioned?

Thu, 07/05/2012 - 12:04 | 2589151 FL_Conservative
FL_Conservative's picture

One can only stretch a rubberband so far before........

Thu, 07/05/2012 - 12:09 | 2589170 tekhneek
tekhneek's picture

...it's rolled over with a larger, stretchier rubber band with a much wider breaking point.

Thu, 07/05/2012 - 12:12 | 2589175 Falkor
Falkor's picture

Wow! this is such a cr*p! Now, banks will go down, taking everything else down, which takes everything else down, which blows up the banks and ......

Thu, 07/05/2012 - 12:14 | 2589184 Peter K
Peter K's picture

Don't blame the players, blame the game. And we all know who creates the rules, now don't we?

Thu, 07/05/2012 - 12:13 | 2589180 Peter K
Peter K's picture

But the biggest news of the day has been missed by most analysts/commentators. Here is a recap of what came across RTS at midday London:



Thu, 07/05/2012 - 12:19 | 2589200 Itch
Itch's picture

Can anyone post a list of Basis swap tickers for bloomberg, if its not too much trouble? (not BB terminal, just the site?)

Thu, 07/05/2012 - 12:24 | 2589214 Itch
Itch's picture

Its ok, found them.

Thu, 07/05/2012 - 12:26 | 2589219 mendigo
mendigo's picture

Clearly the work of evil speculators.
You specs need to do as you are told - no QE for you!

Thu, 07/05/2012 - 12:45 | 2589304 bnbdnb
bnbdnb's picture

Queue swap lines in 3...2...1...

Thu, 07/05/2012 - 12:46 | 2589305 Bastiat009
Bastiat009's picture

European banks are doing ok. They get free money, are reluctant to lend it, don't reward savings ... they may lose money if they own gold but that's about it (gold is once again plunging while stocks are up). Otherwise they are doing just fine. I am not saying that's right, but banking is the safest industry ever. Anybody could run a bank.

Thu, 07/05/2012 - 12:50 | 2589332 tawse57
tawse57's picture


ECB Margin Calls Surge And Basis-Swaps Plunge


I would love to know what this actually means in plain English and not banker speak, and why it is important to most people?


Thu, 07/05/2012 - 13:40 | 2589525 ZeroPower
ZeroPower's picture

The lower the number for 3mo eur$ basis swaps means the harder (more expensive) it is for foreign banks to fund themselves in USD. Considering most banks rely on very short term (immediate) funding, and that in USD, this number becoming lower and lower is a big fear for them. This is what pushed the onset of LTRO1 and 2 last year, as a French bank (think SG, CA, BNPP) was basically 2 seconds away from collapse.

Thu, 07/05/2012 - 13:52 | 2589572 tawse57
tawse57's picture

Thank you for explaining this. Cheers.

So basically this has the potential to make it very difficult for non-US banks to get funding with the possibility of a major bank running out of cash, thereby creating yet another Lehman's style banking crisis.

I wish it would hurry up and happen. They seem to avert it at the last minute all the time.

Thu, 07/05/2012 - 13:40 | 2589526 slaughterer
slaughterer's picture

Can't wait for everybody to start discoveringg how much of a dud Q2 earnings were.

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