On Europe's 'Stealth' Money Printing

Tyler Durden's picture

While much has been made of the public side the ECB's money-printing facade whereby any and every piece of junk collateral can be lodged with the lender-of-first-last-and-only-resort in return for shiny new Euros to spend on government bonds (or save as the case seems to be), there is another facility - the Emergency Liquidity Assistance program (ELA) - that skirts under the radar. As Goldman notes today, the ELA enables the National Central Banks (NCBs) to provide 'liquidity' beyond and above the regular refinancing operations. While the amounts are not quite on the scale of the LTRO, they are large and continue to play a crucial role in stabilizing certain segments of the Euro area banking sector. But, of course, as seems always to be the case, the unintended consequence of this temporary emergency facility is that it appears to have become a permanent facility. This consequence has two rather ugly consequences, it removes still further collateral (assets encumbered) from bank balance sheets and further delays the needed adjustment process (read deleveraging) across the banking sector.



Goldman: Focus: ELA: Providing liquidity under the radar screen

Bottom line:

Emergency Liquidity Assistance (ELA) is one instrument through which National Central Banks (NCBs) in the Eurosystem can provide liquidity to banks beyond and above the regular refinancing operations. Although the overall amount of liquidity provided under ELA is much smaller than the regular monetary policy operations, ELA has played, and continues to play, a crucial role in stabilising certain segments of the Euro area banking sector. ELA, has, however, become now, in some countries at least, a permanent facility increasing the risk of delaying the needed adjustment process in the banking sector.

What is ELA?

National central banks can provide during a “crisis situation” liquidity on an ad-hoc basis to financial institutions in their respective jurisdiction. This assistance is part of the tool box Euro area central banks have at their disposal to fulfill their financial stability mandate. The possibility to use ELA, and thereby provide liquidity to specific financial institutions beyond the normal monetary policy operations conducted by the Eurosystem, allows national central banks to fulfill their role as lender of last resort in circumstances where the regular Eurosystem wide operations would seem to be inadequate.

Under what conditions can ELA be provided?

The decision to provide ELA is taken by the NCBs in the Eurosystem, implying a high degree of discretion on the side of NCBs. Because of this relative independence, all financial risks stemming from ELA operations remains with the NCBs and possible losses are not, unlike in the case of normal refinancing operations, shared among national central banks.

There is no Eurosystem wide operational procedure that would specify exactly under what circumstances ELA can be provided. The ECB, however, has given legal opinions regarding laws in some member countries on the role of national central banks in guaranteeing financial stability. These legal opinions give an indication what, in the view of the ECB, the broad guiding principles for providing ELA should be in theory: ELA should be only provided 1) temporarily for 2) illiquid but solvent financial institutions against 3) good collateral. Note also that ELA should not be used to provide monetary financing to governments. The experience over the last two years, however, has shown that these criteria are not necessarily always met. In some countries, for example, ELA has become a permanent source for partly refinancing the banking sector.

What is the role of the ECB in all this?

Article 14.4 of the Statue of the European System of Central Banks (ESCB) allows national central banks to perform tasks outside the normal operations “unless the Governing Council finds, by a majority of two thirds of the votes cast, that these interfere with the objectives and tasks of the ESCB”. Thus, the ECB’s Governing Council (GC) can stop a national central bank, assuming there is a sufficient majority, if it deems the actions of that national central bank to be conflicting with any Euro area wide objectives of the ESCB. The GC could, for example, decide that the liquidity provision through ELA would influence the Euro area monetary aggregates to an extent that would endanger the ECB’s price stability mandate.

How big is the amount of ELA currently provided?

ELA measures are labeled as “other claims against credit institutions denominated in Euro” or simply “other assets” on the balance sheets of national central banks. Not all central banks, however, publish this information and determining the overall amount of liquidity provided through ELA is not straightforward. Chart 1 shows ELA liquidity for several national central banks.

The consolidated balance sheet of the ESCB currently shows more than €70bn of such claims, though the total amount of ELA provided could be still higher. At least in the past the ELA provided by the Irish Central Bank was occasionally bigger than the respective figure for the consolidated ESCB balance sheet. But despite some uncertainty of the exact magnitude of ELA it is safe to assume that the regular refinancing operations of the ECB are around one order of magnitude bigger.

Why is there a need for ELA in the current full-allotment regime?

 The ECB is providing liquidity in so-called full allotment mode, meaning it will fulfill any liquidity demand of banks against eligible collateral. Moreover, the ECB just recently broadened the range of eligible collateral significantly, which should, everything else equal, reduce the need for ELA even further. The fact that ELA is - despite full allotment and a broadened range of collateral – still heavily used in some countries suggests, however, that the range of collateral that is being accepted under ELA is still more generous than under the normal monetary policy operations.

It is noteworthy in that respect that the ECB decided last Friday to allow NCBs to not accept government guaranteed bank debt as collateral in regular monetary policy operations. This might again lead to an increased recourse to ELA in some cases.

What are the financial risks for other countries stemming from the ELA provision in another Euro area country?

There is no direct risk as any losses occurring due to the provision of ELA would need to be absorbed by that national central bank and the sovereign standing behind that central bank. There are, however, indirect risks. First, ELA, may be provided to insolvent banks thereby preventing the necessary adjustment in the banking sector. Second, a national central bank may suffer losses that would wipe out its capital and the underlying sovereign may not be able to recapitalise the central bank. While a central bank can in principle also operate with negative equity, such a scenario could make investors and the general public doubt the overall credibility of the ESCB on many different layers. A final indirect risk stems from the fact that ELA implies a degree of fragmentation of monetary policy in the Euro area.

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Sudden Debt's picture

This is like looking for the elephant in the room.
I'm more interested to see which countries that DON'T print like crazy!

SilverTree's picture

Rising intrest rates will crush the world.

ilovefreedom's picture

Not the entire world, Antarctica should do ok.

Future Tense's picture

I think one of the most interesting factors about both Europe and the US's continuous money printing is that it has had no impact on stemming the losses for real estate in Spain, Ireland, and America; the bubble locations.  It's amazing to think about what the real estate picture is going to look like when the FHA closes its doors, which it looks like will be coming soon........


Sophist Economicus's picture

I'm more interested to see which countries that DON'T print like crazy!


StychoKiller's picture

Why is yer homeland (Belgium) hitting on the ELA like a nubile 18 year-old hottie?

Ghordius's picture

Ehm... So what? The only scary part is not the message, it's the messenger...
The red line of Germany is btw the way it was supposed to be used, and it helped. Peanuts, sadly peanuts only...

espirit's picture

Most everybody is doing the CTRL+P dance, with an extra heavy paper wealth partner.

When the music stops, somebody is going to get crushed in the fight over the last chair while the building burns.

ZH'ers pulled the fire alarm long ago.

Vampyroteuthis infernalis's picture

Leaders of an insolvent entity spend a significant amount of energy to keep it afloat. If that means screwing everyone in sight, it is typically what they will do.

Piranhanoia's picture

On our planet you get one shadow during daytime,  the sun.  You can also get a shadow at night if the moon is bright, but it is the same daylight.  

Only when you are in a TV studio or otherwise surrounded by big lights do you get multiple shadows.  Film, press conferences, interviews,  you get the picture.

So we have shadow banking for shadow banking for shadow banking for shadow banking to cover the acts of the central banks, and the national banks, and the local banks and on down to the loan sharks.

Itz about zie stabeeleetee.  Shadows from artificial light are made to mislead.

yogibear's picture

Charge it to Bernanke and the Federal Reserve banksters. They can create money from nothing. It's magic. Nothing is real except those poor saps in China that actually produce something for that make-believe money.


China and the Middle east provide something from nothing!! Keep on Printing Bernanke to buy all that stuff from China and oil from the middle east. Just give the fools in China and the middle east more worthless paper.

Jim in MN's picture

Whatever.   In case anyone cares.




New probe finds worse damage at Fukushima reactor

TOKYO (AP) — A new probe at Japan's crippled nuclear power plant has found fatal radiation levels and hardly any cooling water inside one of the reactors, renewing concerns about the plant's stability.

The operator of the Fukushima Dai-ichi nuclear plant says an endoscopic examination Tuesday detected radiation levels up to 10 times the fatal dose inside the No. 2 reactor's contain chamber, suggesting challenges ahead in shutting down the facility.

The probe also found the containment vessel had cooling water up to only about 60 centimeters (2 feet) from the bottom, far below the 10 meters (yards) estimated when the government declared the plant's stability in December.

Plant workers also reported fresh leaks of contaminated water from a water treatment unit, some flowing into the ocean.

cosmictrainwreck's picture

Thanks, Jim. That's one BIG rat hiding under the carpet of the "news"..... ain't heard a peep from MSM

Vampyroteuthis infernalis's picture

What is scary about the Japanese radiation mess is the effects will appear years if not decades later. The radiation is not high enough away from the plant for immediate radiation poisoning. It is high enough to cause body damage over long term exposure though. It is a sad day. If another reactor blows, the troubles will multiply.

q99x2's picture

TEPCO is pretty much is done with Fukushima. They are moving on to build two new facilities in Texas.

Bam_Man's picture

Because of their cross-holdings, swap arrangements and extreme use of leverage, the Federal Reserve, ECB, Bank of Japan and Bank of England will all fail if one of them fails.

Something to keep in mind.

JTBfromtheWL's picture

I want someone to figure out how much the nat. Debt would weigh in $100s. Then compare that to the weight of stored tungsten.

YearZero Institute's picture

Hasn't the world ended yet you fucking ignorant right wing cunts?

Face it, ZeroHedge has called it wrong 99pc of the time. About the same proportion of your readers who would have happily voted fascist in the 1930s.

magpie's picture

"At least they make the HFT bots run on time" /sarc

TrustWho's picture

Hitler came to power more than 10 years after world war I and soon after hyper-inflation destroyed the German economy. If you think Daddy Bernanke saved your ass, you will soon have a rude awakening!

Western's picture



I don't usually see someone so violently brainwashed.

YearZero Institute's picture

You pathetic halfwits who voted for `free markets` and all the other illusions your right wing democrats and right wing republicans sold you in the 1970s, 80s and 90s.

Now you run about scared out of your minds, screaming like girls that Obama is a 'socialist' and not another right wing criminal at the head of your violent, torture-loving, child killing state.

You bandy about meaningless infantile words like 'freedom' and 'rights' while you let your own real live children go hungry.

You are fucking ignorant, deluded. You have no grasp of your own history let alone the histroy of the rest of the world. And you are too piss frightened to do anything about it.


magpie's picture

Government can't be everywhere all of the time. It can always try. With known effects.

Reptil's picture

The issue of "rightwing" or "leftwing" is an obsolete remnant of the cold-war period, and you using it, as a straw man tactic, tells me you have NO idea about the real powerstructures of our world. Lack of regulation, and abandonment of the checks and balances that kept corruption in check, and so a free market where everyone has (or should have) equal opportunity (depending on personal skill and intelligence) have caused the present nosedive. The reaction of "so called liberal politicians" has been to discard government's recognition of UNALIENABLE NATURAL RIGHTS, instead of dealing with the corruption. This official policy has only one possible outcome; everyone sick and bankrupt, so a few can introduce even more "rescue operations".

Get this: It (right or leftwing) is a diversionairy tactic to keep you, and equally the right wing voters occupied with a hollow, meaningless discussion.

Your angry dribble is unfounded, but does give me a handle to formulate this, here and now. So I thank you.

And no.. I'm not afraid.


StychoKiller's picture

Prove yerself, go forth and alleviate some suffering:  http://www.worldvision.org (arguably, the most efficient charity in existence!)

Canucklehead's picture

Judging by your tone and sentence structure, I would say you are a tribal socialist.

Am I right?

Schmuck Raker's picture

This is the best example I've seen in a long time of why hippies shouldn't do coke.

LongSoupLine's picture

Gasp, more back door liquidity...not mentioned in the MSM?


Ohhhh, I see.  If it was mentioned then the whole MSM "recovery" enima would be exposed for what it is.

yogibear's picture

LOL, Bernanke and the fed can just keep on printing trillions and shoving shipping it to those Middle East oil fools. Nothing has to back it. Print it into worthless number Who says you can't have something for nothing! You have Asia and the Middle East just sucking up the paper.

Then poof, it's gone. Those suckers will never know what hit them! Excellent scheme by Bernanke and the Federal Reserve.

MiddletonRobert3's picture

my roomate's sister makes $85 hourly on the computer. She has been fired from work for 6 months but last month her paycheck was $16158 just working on the computer for a few hours. Read more here .....  http://lazyCash9.com

noses's picture

Sex on the computer is ok – just don't fall off.

slewie the pi-rat's picture

so many zombies

so little time

Dermasolarapaterraphatrima's picture

Do EU Bankers get $$Billions$$ in Bonuses like in the USA?

Reptil's picture

Bonus, yes, not as much... and with varying success: http://www.guardian.co.uk/business/2011/mar/27/dutch-bankers-bonuses-axe...

we're losing the battle though.. the government has been infiltrated. Regular banks will not be seperated from investment banks, it turns out. So they got the savers by the balls.


AU5K's picture

this proves beyond a shadow of a doubt the system is fixed.  but how does it collapse on itself (as we know it will) if it can provide basically unlimited liquidity "at no direct risk"?