Since Mario Draghi's first ECB meeting in November 2011, the ECB balance sheet has expanded by 30% (including two rounds of LTRO which funneled $1.3tn into banks). What did we get for all that money? As Bloomberg's Chart of the Day shows, not much. Critically, as some European banks look to return that stigmatizing encumbrance, it is the banks that have benefited massively from Draghi's exuberance while the people (of Spain for example) have suffered. Using the spread between EURIBOR and OIS as a proxy for short-term liquidity (funding costs), since Draghi began his ex-Goldman stint, bank funding costs have plunged (as also shown below with CDS spreads). Meanwhile, European governments' funding costs have gone nowhere - and in most cases are considerably higher. Draghi even admitted that LTRO was not expected to reach 'the people' when he dismissed inflationary fears this morning on the back of expectations that the banks haven't used the cash - is it any wonder Nigel Farage is fuming and Greeks and Spaniards are rioting? Just wait til the Irish are told 'no' to retroactive OMT...
The true benefactors of Draghi's Dream...
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and CDS spreads also show the optical improvement in bank risk since Draghi took over...
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As Bloomberg notes:
The point of the LTROs was to ease the refinancing pressure on the financials, and liquidity is still abundant,” said Gianluca Ziglio, a strategist at UBS AG in London. “The big announcement of the bond-buying has now been neutralized. Unless that power is unleashed in the market there is no way,” yields will fall, he said.
Source: Bloomberg