Welcome To Chez Central Planner: Presenting The Complete Fed/ECB Response Menu

Tyler Durden's picture

We will start with an appetizer of Liquidity Tenders and Securities Market Program Bond Purchases, move on to a plate of Emergency Liquidity Assistance, sample a pre-entre of Pro-Growth measures and ECB Covered Bond purchases, dive into an entre of Fed Swap Lines, medium rare, with a side of Emergency Liquidity Assistance, and finally unwind with a desert plate of Firewalls. To close we will dream of tomorrow' menu which some say may feature the mythical Eurobonds and even the, gasp, legendary Europan Bank Deposit Guarantee...

Please charge it all to the taxpayer, of course.

Now that a coordinated policy response is largely priced in (because if it wasn't, futures would be about 3% lower in just the past 2 trading days), the next question the market has to ask is just what form will this "response" come under. Courtesy of JPM, we have a full list of virtually every single probable, and less than probable, intervention technique in the central planner arsenal. Alas, a cursory glance of the entire response menu shows that there is too little, too late here: absent full blown printing of trillions by all central banks to mitigate the impact of the inevitable Greek exit, we may well be staring at the Nietzschean abyss.

From JPM

Potential policy responses from Europe:

  • ECB policy rates – the ECB’s rhetoric has shifted lately and officials have become less concerned about inflation and more worried about growth.  Expectations are rising for the present 1% policy rate to be cut although it isn’t clear how good this will do for the current problems specifically. 
  • ECB SMP (Securities Market Program).  This was introduced back in May 10 and while it has been dormant now for several weeks (it hasn’t been used since late Mar), in total there have been ~EU215B worth of sovereign bond purchases made via this facility.  The SMP is a redirection of liquidity as all purchases are “sterilized” (this is a key difference between the SMP and the Fed’s QE – the Fed’s purchases are “unsterilized” and represent a net injection of liquidity).  In theory, there is no limit to the SMP although in reality there are (due to political constraints but also b/c of sterilization limits – recall the ECB once last year failed during one of its sterilization attempts).  Back in the summer/fall of 2011, the SMP nearly bought EU10-15B during some weeks (you can see the amounts under “ECBCSMPW Index” on Bloomberg) but it isn’t clear that purchases at those levels can be sustained for long (keep in mind that certain ECB officials, inc. former Bundesbank head Axel Weber, resigned over this program). 
  • ECB Liquidity tenders – the ECB currently conducts liquidity operations in 1-week (“MRO” or main refinancing operations) and 3-month intervals (“LTRO” or long-term refinancing operations).  Europe’s banks can take eligible collateral to the ECB in unlimited amounts and borrow against it w/appropriate haircuts.  Recall the ECB recently conducted two 36-month liquidity operations and in theory could launch tenders for any interval of time (6-month, 12-month, 24-month, etc).  However, Europe’s banks may not have a ton of eligible collateral left, making future LTROs less effective than the ones from 2011.  Keep in mind too ECB politics are a factor as these operations start to have longer maturities – recall that the ECB eased collateral standards for the second 36m operation but allowed each individual central bank to make the final determination (and some, like the Bundesbank, kept collateral standards unchanged).  The next ECB meeting comes up June 6 and there has been some spec of them doing an LTRO less than 36m (something like ~12m). 
  • Don’t forget about subordination – the Greek PSI has set an important precedent that in some ways makes the SMP and liquidity operations counterproductive.  The Greek haircuts were imposed only on debt held by private investors (it spared all the Greek debt owned in the SMP or used as collateral for operations). Therefore, as the ECB ramps up either of those facilities, it in effect subordinates private bond holders. 
  • ECB covered bond purchase program – the ECB has launched two covered bond purchase programs, the second of which was unveiled back in Nov ’11.  However, these have had only a very mild impact on markets (the second covered bond purchase program had only ~EU11B outstanding as of May). 
  • European bank deposit guarantees – can a pan-European guarantor be introduced?  No, not easily (this speculation is a bit more credible than the Eurobond dream but not by much) – right now each country has its own bank deposit guarantee fund and there is no pan-European FDIC-like structure.  In theory, the individual country guarantee schemes can borrow from one another up to a certain limit (something talked about here http://bit.ly/Ki2aRD) but the creation of a single guarantor would likely take time and require parliamentary approval.  Could the ESM lend money to a deposit guarantor?  Possibly, but again the same problem exists whereby the ESM can only lend to governments (and the sovereign in turn would then have to redirect the money).  So bottom line: like Eurobonds, a pan-European deposit fund would be great but doesn’t seem very likely in the near/intermediate-term. 
  • ELAs (emergency liquidity assistance) – an ELA is a facility introduced by the individual national central banks (only by ECB approval) designed to allow banks that would otherwise be locked out of normal ECB operations to secure liquidity.  Ireland and Greece both have ELAs (although other CBs may have undeclared ELAs open too) and other countries could introduce these facilities.  For the ELA, the national central bank is on the hook for any losses (vs. the overall ECB). 
  • Europe’s firewalls – back on Mar 30, Europe announced it would expand the size of their combined firewalls.  What they really did however was decide not to count the existing EFSF bailout arrangements (which total ~EU200B for Ireland, Portugal, and Greece) against the prior total EFSF/ESM bailout cap of EU500B (http://bit.ly/KiMI7y).  There has been speculation recently of using some of the EFSF money to provide capital into the Spanish banking system although as the structure is presently, this money would have to be channeled through a government (so Madrid would have to borrow and distribute the money to banks – banks can’t borrow directly).  Some within Europe have called for allowing the EFSF/ESM to have banking licenses, effectively making them eligible to borrow from the ECB (although keep in mind Germany, and the ECB, have both been adamantly against this).   
  • New short sale restrictions – Europe has imposed short selling restrictions on several occasions throughout the crisis and could very well do so again.  According to a recent press report, Spain’s banks are requesting a new short sale ban (per Bloomberg). 
  • Pro-growth measures – one of the immediate impacts from the Hollande presidency will likely be the adoption of pro-growth measures although it doesn’t seem like any will be all that material (the EIB could get a bit more money and certain fiscal targets may be softened but markets prob. won’t care much about either and actually could get more worried if countries are given more time to cut spending). 
  • “Eurobonds” – this is the holy grail of Eurozone crisis response tools but they seem extremely unlikely in the near-term. 
  • The IMF – according to the IMF’s latest update (http://bit.ly/KbEoqV), it has US$367B of Forward commitment capacity (FCC) but keep in mind this is for the whole world (not just Europe).  Back in Apr the IMF said it received $430B in new commitments but it isn’t clear when/if this money will actually find its way into the organization’s coffers.  The IMF would likely only participate in a broader liquidity package for a country that lost full access to private markets. 

What about the Fed? 

  • The next Fed meeting is June 20 which means they will have the benefit of one more jobs report (June 1) between now and then.  Based on where everything stands now (in terms of data), trends wouldn't support further easing (unless the June 1 BLS is a disaster).  The Fed could justify something in light of Europe if there were severe stresses in credit markets but as of right now there aren't any.  May 24 and June 1 will be important dates for eco data that will determine QE expectations (we get flash PMIs on May 24 and official PMIs and US jobs on June 1).
  • If the Fed does decide to ease further, what could they do?  For another "Twist", they don't have an unlimited capacity of stuff to sell.  Also the Fed has spoken about how they don't want to become too large a portion of the Treasury market and they would be bumping up into some of those limits if they bought a lot more longer-duration TSYs.  Another asset class could be targeted for purchase, like mortgages, but this could face resistance within the Fed.  Keep in mind the WSJ article from several weeks ago that talked about how the Fed would look to potentially “sterilize” any further balance sheet expansion.  Finally, recall that the whole point of QE is to lower Treasury yields but the market is doing that for them (10 yr yields are closing in on record lows).
  • Swap lines - recall back in Nov ’11, the Fed announced it would cut the rate charged on dollar funding to foreign central banks (inc. the ECB).  Those swap lines remain open (and charge a rate of OIS +50bp).  The Fed could in theory come out and cut the rate charged on these swap lines although the present problem isn’t one of dollar funding (recall back in 2011 there were widespread reports of European banks having trouble securing funding for their dollar-denominated assets). 

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ihedgemyhedges's picture

I'll have the pommes frites with my ELA please.  And a bottle of your finest Bordeaux..............

qmhedging's picture

China just released a 38 billion $ mini stimulus package(in Green Economy and public housing) on May 24.More will come if Europe can't handle Greece orderly.

readyforit's picture

I'm afraid I'm going to need a bigger bucket.

Robot Traders Mom's picture

Chez Quis: Ferris Bueller's choice in the Downtown Chicago area.


Good reference Tyler.

rsnoble's picture

I'm gonna throw a 20oz porterhouse on my grill here in a few for breakfast and then spend the next hour bitching about how bad things are lol.

rsnoble's picture

Oh I gota fry a couple eggs too. 

Could you imagine going back to the cowboy days? Very, very few people would ever survive. Even a lot of farmers out here would fucked.  My neighbor has 100 head of cow and I asked him about this. "Oh well I got cows".  I'm like do you know how to butcher one? Answer: No. "Where are you going to store the meat if you have electricity? Answer: I don't know. So in other words you are prepared to have an entire cow only last 1 day because it will rot? Answer: Damn you're right.  In other words people that think they're prepared really aren't and have no clue.

Of course im sure all the whiz kids will do a simple internet search and find all these answers but it won't matter because you won't take action and you'll still be fucked.

Ok, enough on that subject im getting hungry.

HD's picture

That would be five steak dinners for me... Doc says a serving of meat is around 4oz (about the size of a deck of cards). I hate that doctor.

Cook me up one medium rare - throw some onions and mushrooms on top with a pinch of salt. A nice big baked potato with butter and sour cream. A cold beer. Hot buttered rolls.

A man can dream...


rsnoble's picture

Keep in mind it's 8am here, I have to wait at least until noon for the beer.

My neighbor is only 48 and has gout. All he does is drink beer and smoke meats so he's fkd. Beer and meat both have the chemical that causes gout.  I better knock it off I guess.

HD's picture

"All he does is drink beer and smoke meats so he's fkd."

He is indeed fucked...but what a way to go.

HD's picture

...which of these policies will stop bank runs?

Zero Govt's picture

shooting the customers as they come through the door???

HD's picture

May not be too far off. Last year BOA and Citi were having people arrested for making withdrawals - I mean being "disruptive". Many of those incidents showed up on Youtube...

gatorengineer's picture

The Pending armament of drones in the US with Rubber bullets........  See drudge....

goldfish1's picture


- stolen from some witty poster this morning

Zero Govt's picture

all these fancy words, the management-speak gobbledegook policy options

..just looks like another fucking bailout to me

kridkrid's picture

http://www.youtube.com/watch?v=LFhDFDffd2Y - "it's waffa thin".  John Cleese was genius is that bit.

falak pema's picture

I nearly laughed out my oyster menu I had at lunch with light white wine. Awesome, what a genius! It wasn't expensive where i live, the oysters and white wine, not the vomit. That costs! 

Christoph830's picture

I'll have a glass of your finest Class Warfare for my digestif, thanks

TheGardener's picture

Nietzsche was always positive and upbeat, quotes from him should be banned on a doomsters site..:-)

In " Beyond good and evil " he sheers us up with : "And when you gaze long into an abyss the abyss also gazes into

IMA5U's picture

Das Kommunists!!!!!!

Boilermaker's picture

A little short sellers flambe' to end the evening.

Mercury's picture

The cleaning woman he's puking on is you.

SheepDog-One's picture

Oh yea? You'll BUY our stocks retail Joe, even if it means we have to cram em right down your throat with a steam shovel! 

Day_Of_The_Tentacle's picture

More like peoples freedom, please!

PLEASE NOTE: It appears from yesterdays post summit news conference with Mr. Rompoy, that they plan to fast-track the abolishment of free speech on the internet by including it into the so called "Pro-Growth Initiatives". He said specifically that the one pillar of the plan for growth would be enactment of the Digital Agenda: 


The level of potential coordination is disturbing. The US is apparently doing in the same process, just different tools:


Plus this extra little goodie from the US. Congress courtesy of and hat tip to "Be Prepared" from TFMetals: 


A few months ago it was the same, only then the "debate" was abolishment of physical cash. Over a timespan of a few months, I saw newspaper articles on a Canadian site, American site, Swedish site, Danish site and a Spanish weekly newspaper - pointing to the neat practicalities of a cashless society with plastic cards.

Or how about the harrasment of big payment centrals like (i think it was) VISA, that apparently has a policy to block your card, when you use it on sites, with "Gold" or "Silver" in the name, because that could be suspect - or at least more suspect than any other site, where you pay with your card.

Not to mention JPM as major correspondent bank between Europe and the US - lifting 30-50$ on each transfer without corresponding bookkeeping trail to sending nor receiving bank. And they all want us to go cashless for an even greater rip-off!

And how about the already implemented change to the internet banking access, that they did in Denmark last year, which made it mandatory to have a centrally administrated Internet ID to access your netbank - the same as used to enter public sites - after a wholesale abolishment of the individual access systems - and almost NO PUBLIC DEBATE whatsoever. And this central administration is carried out by a limited liabiity private company! Good luck getting information out of them, if/when the privacy policy has been watered out in a few years of increasingly onorous EU initiatives.

Rant off! 

But whenever they start messing with the internet - people - all of us - should be screaming BLOODY MURDER - everytime!!

LULZBank's picture

I have a bad and risky business. I make losses everytime but I have a good friend who has promised to give me cash everytime Im short of some for eternity. I would never go under.

Now, why did Lehman collapsed? Why would any business, bank or a State collapse if they are backed by an authorised printing press?

There wont be a Financial collapse, as long as sheeple has confidence in it. All your predictions, charts and analysis are belongs to us.

kridkrid's picture

it'll work... until it doesn't.

LULZBank's picture

True, but all I was tryina say was, at what point it will stop working.

Stackers's picture

Hope everyone caught the LIESman and DUDley interview this morning. .......

midgetrannyporn's picture

All hail free markets which are neither free nor markets. The larceny shall continue until morale improves.

falak pema's picture

welcome to Corpocracy planning : we fukk you either way you go. 

BTW : After Sarko, the next Euro Corpocrat is Cameron, total US hegemony shill . And what does Cameron say today ???

"The best things in life are Saville ROw but...give me money, QE to infinity by BOE, 'cos I want growth! So what happened to The Economist shill austerity mantra??? Is the UK now betraying their own vlaues to protect their friends of the ONE SQAURE MILE, as we come down the finishing stretch of the London Olympiad? Ask Nigel Farage the man who knows all about being a BRIT, behind Hadrian's wall. Its every man for himself and may the devil take the hindmost if the Euro ponzi explosion leads to Capitalist meltdown. 

The USa is now wanting Merkel to cave in; not for the same reasons as Hollande and Club Med; but to save their green back hegemony and the Banksta cabal. But its becoming a tougher and tougher game as the FB IPO and JPM whale casino shows us. US cabalista is now asking itself can we all hang in there as we have the fiscal wall hitting us in 2013! 

Fun n games in Euro land this summer as the fate of world capitalism now hangs by a thread on the decisions of an East German Frau. I think Honecker must be laughing and laughing in his grave; just like John le Carré in his Cornwall residence, who was amongst the first to claim that Blair was a sham and the Afghan war with UK participation in Karzai's poppy land a total CIA scam. The honourable tailor of Panama says hello to you all! 

LULZBank's picture

Its every man for himself and may the devil take the hindmost if the Euro ponzi explosion leads to Capitalist meltdown. 

We will all be Afghans very soon.

TheGardener's picture

Merkel always caves in if this leads out of dodge for some
time and serves her handlers. If anyone, she is the first
to smell trouble in the leaders she has to look up to, this
communist youth girl will kill the king when she thinks it's

Hollande is where she was as a youth functionary, so she
must feel almost abandoned by CFR and the like in this
power vacuum.

Catullus's picture

the SMP sounds like a Go-Go Gadget ejection button.  Once you access it, go ahead and liquidate everything through it.

The liquidity tenders are dumb.  ZH has already shown there's not enough good assets out there to swap.

A firewall is just a pool of money to buy assets.  Again, see SMP.

A deposit guarantee company would be a terrible idea.  If I were a multi-national bank, I un-repatriotiate some MBS and CRE bonds into Europe and dump a load on it.

A short-sale restriction would be a temporary but unmitigated disaster.

Eurobonds won't exist until their there's Euro balance sheet.

And the IMF is not incremental to the discussion because they're always there to throw off money wildly for any reason.

youngman's picture

Who would want a bigger government?????? Why the people in the Government..they get a better parking space...of course more money for such responsibility....a newer corner office..higher up of course...Limos..jets...security..huge pensions..free tickets to Madonna...hours in front of microphones for the adoring crowds who love them...the fawning press...they can thell YOU what to DO...all kinds of goodies..so yes..they like bigger governments

LULZBank's picture

Bigger government because more are getting in the know and want their cut.

Politeyx's picture

Meet me at the New World Cafe for dinner. Let's start off with a Socialist Salad. Next we'll have the Stalin and Eggs followed by Pol Pot Pie with a nice Communist Consume. We'll wet that down with a bottle of Third Reich Riesling; and my favorite for desert - a classic Castro Creme Brulee. Then you can bring the bucket.

falak pema's picture

you're already eating Corpocracy hamburgers, upto your gills, and its all obesity indexed to max.;  so whats your problem? Variety is the spice of life! 

SheepDog-One's picture

I see, in short basically everything is completely FUBAR, but the odds are better than 50/50 that the Fed bullshit will be extra strong. 

marcusfenix's picture

how about the fiat flambe for dessert...

can I order that?

I'd like my fiat extra on fire please.

thank you.

Rathmullan's picture

Yes, but the Irish may be serving up their infamous mutton and peasant soup on the 31st

cherry picker's picture

Anyone keeping tabs on what is happening in Greece, Spain, Italy, the UK and France would have to worry about social unrest becoming the major factor later this year.

People need to eat and have shelter, that is a given.  Screw the profits and plans and promises for growth.  With depression era unemployment, bankrupt governments and no way out, the people will force "hope" and "change".

This time Germany, as before, is viewed by the world as the "bad" guy and will eventually resent it.

Germany started two world wars before, if number three comes, I wouldn't be surprised that it started in Europe again and not the Middle East although Israel would love to be the martyr nation that starts Armageddon in order that prophecies are fulfilled, but it will likely not be the case.

God doesn't work the way people think.  :)

LULZBank's picture

Are the Germans making weapons and training an army already?

This time, I think it would be Anglo-America Vs rest of the world. Lot of people would love to settle scores of era gone by.

TheCanimal's picture

On another note, i read "Egon von Greyerz told King World News that a client went to move a significant amount of “allocated” gold from a Swiss bank, but the bank shocked the customer because they did not have the gold".  If this is true, which bank and what customer?

khakuda's picture

I love the concept of "Let's throw a bunch of acronyms people can't deciper at the problem so the public thinks we know what we're doing"

I guess it works for a few months to calm the markets while they do nothing to solve the underlying solvency issues of the developed world.  And you know they have double meanings and they are all laughing at us.  SMP:  Securities Market Program, aka Shit My Pants, isn't much different than all the PIP's, aka Poop In Pants, the US was doing.

Amish Hacker's picture

The people ordered fiscal responsibility (sorry, no longer on the menu). Instead, they were served debt, in portions that were way too large, and not nearly as rare as they should have been. But, alas, in the Fed kitchen, nothing ever turns out well done.