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The ECB released its weekly statement for the week ending at 21 December 2012. Since on 21/12/2012 Greek government titles began to be accepted as collateral in ECB refinancing operations this week’s statement should provide for a closer look at the magnitude of the change in Greek banks borrowings.

Asset Side

Looking into the asset side ‘Other claims’ were lower by €20.7bn which should correspond to the reduction of the use of ELA by the Greek banking system. Since MROs happen in the middle of the week, Greek banks would only have access to the marginal lending facility which shows an increase of €13.61bn. The almost €7bn difference should most probably be attributed to the (cash) part of the December Greek disbursement which would be used for budget needs (the rest of the funds were in the form of EFSF notes and bills). Regular operations (MRO and LTRO) were lower by €4.9bn which should be attributed to the generally positive climate since the OMT announcement.

Liability Side

On the liability side banknotes in circulation show a very large increase of €11.91bn, probably of seasonal (Christmas) nature. Bank reserves are 11.62bn lower and liabilities to other euro area residents by €18.27bn, both in the case of ‘General Government’ and ‘Other liabilities’. Liabilities to non-euro area residents are €3.57bn higher which is a negative development.

New MRO

The latest MRO (which should include any borrowing by Greek banks from the marginal lending facility being moved to the regular lower rated weekly operation) shows an increase of €17bn from €72.8bn to €89.66bn. In general, it seems that Greek banks managed to move a large part of their ELA borrowing to the ECB regular operations while also lowering their Target2 liabilities (with the help of the disbersement). Things will be much clearer when BoG releases its December balance sheet.

On a related note, the ECB also included the Greek collateral haircut list in its decision of 19 December. The haircuts are quite heavy (15% for T-Bills of up to 1 year maturities) but will still allow for much lower yields in the forthcoming T-Bill auctions which could move close to 1% (from over 4%). Such a development would make current T-Bills a high return investment. Remaining Greek bonds will face haircuts of 56-57% which should place a rather high floor on their yields.

Greek collateral haircuts

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During the past few weeks i ‘ve not commented on the ECB weekly statement since the data indicated lower pressures in the European banking system. This week’s statement is a bit different.

Asset Side

On the asset side, the weekly USD liquidity-providing operation dropped to $6.2bn, down from $8.5bn in the previous week. Lending to credit institutions increased by €1.6bn. ‘Other Claims’ (ELA) were higher by almost €3.8bn. There’s some talk that Spanish banks have started accessing the ELA facility as well. We ‘ll probably have to wait till the BdE releases its monthly data to know more on that.

Liabilities Side

Banknotes dropped €0.6bn while bank reserves increased by €29.8bn, with most of the liquidity coming from reduced General government accounts which dropped €35.9bn. ‘Liabilities to non euro area residents’ increased €6.5bn this week, reversing a downward path during the last few weeks.

New MRO

This week’s MRO was much lower than last week, registering at €126.33bn compared with €131.5bn, most definitely a positive development. Still, i ‘d like to see the ‘other claims’ entry in next week’s statement before drawing any definite conclusion.

ECB released its weekly statement for the week ending on 10 August. Some small positive signs since last week seem to continue.

Asset Side

On the asset side, the weekly USD liquidity-providing operation remained roughly steady at $7.1bn. Lending to credit institutions increased by €1.3bn. ‘Other Claims’ (ELA) decreased a bit more this week as well by €1.35bn.

Liabilities Side

Banknotes dropped €0.9bn while bank reserves increased by €12.6bn. General government accounts decreased by €0.8bn while ‘Other liabilities’ (in the same category with government deposits) dropped 0.5bn this week. ‘Liabilities to non euro area residents’ were lower again, this week dropping by 9.4bn. Still, current SNB data do not seem to suggest that Euros are returning back home so i ‘m wondering if the drop in this entry is due to SNB investing its reserve holdings (most probably in government bonds). We ‘ll have to wait and see.

New MRO

This week’s MRO was somewhat lower than week’s, registering at €130.6bn compared with €133.4bn, most definitely a positive development.

ECB released its weekly statement for the week ending on 3 August. It’s one of those rare positive statements.

Asset Side

On the asset side, the weekly USD liquidity-providing operation decreased $1bn, from $8bn to $7bn. Lending to credit institutions increased by €1.8bn due to a larger MRO. ‘Other Claims’ (ELA) decreased significantly by €10.5bn after a very large increase in the previous week.

Liabilities Side

Banknotes grew €4.8bn while bank reserves dropped by €3.1bn, with current accounts continuing to grow (with funds flowing from the deposit facility). General government accounts decreased by €9.7bn while ‘Other liabilities’ (in the same category with government deposits) increased again by €1.8bn. A very positive development was the fact that ‘Liabilities to non euro area residents’ were lower €5.3bn this week.

New MRO

This week’s MRO increased a bit compared to last week’s. recording at €133.4bn compared with €132.8bn.

ECB released its weekly statement for the week ending on 20 July.

Asset Side

On the asset side, weekly and 3-month USD liquidity-providing operations decreased $3.3bn, from $10.3bn to $7bn, a highly positive development, especially after the upwards trend of the last few weeks. Lending to credit institutions decreased by €7.25bn through a lower MRO. ‘Other Claims’ (ELA) also decreased by €7.76bn. They are projected to grow this week after the ECB decision to not accept Greek government paper as collateral. Overall, the financing operations point to a clear easing of market stress during the previous week.

Liabilities Side

Banknotes dropped €1.3bn while bank reserves decreased by €25.3bn, with a positive drop in deposits related to margin calls (-€1.14bn). Current accounts kept growing (with funds only leaving the deposit facility), while General government accounts increased by €5.35bn. The entry ‘Other liabilities’ in the ‘liabilities to other euro area residents denominated in euro’ increased substantially by €6.92bn. The ECB annual accounts describes them as:

«This item comprises deposits by members of the Euro Banking Association (EBA) which are used in order to provide the ECB with collateral in respect of the EBA’s payments settled through the TARGET2 system.»

‘Liabilities to non euro area residents’ increased by only €0.9bn.

New MRO

This week’s MRO was quite lower than the maturing one, at €130.7bn compared with €156.7bn, continuing a downward trend.

In general it was one of those positive weeks.

ECB released its weekly statement for the week ending on13 July.

Asset Side

On the asset side, weekly USD liquidity-providing operations increased from $4.3bn to $5.1bn (+$0.8bn). It seems that European banks continue to face difficulties in finding USD term funding, resulting in continued growth in USD swap usage. Lending to credit institutions increased by €5bn through a larger LTRO, while the MRO remained the same. ‘Other Claims’ (ELA) grew €2.8bn, reversing last week’s drop. This could indicate renewed difficulty to access normal central bank liquidity operations by troubled Euro countries (such as Greece) and/or larger capital outflows.

Liabilities Side

Banknotes remained steady while bank reserves decreased by €18.6bn. The large move of funds from the deposit facility to current accounts (due to the ECB dropping the deposit rate to zero) is quite evident. General government accounts decreased €3bn.

After posting a large drop of €10.2bn last week, ‘Liabilities to non euro area residents’ exploded by €32.5bn, a very large weekly change. One cannot be sure if the change is due to new euro outflows or if foreign central banks (such as the SNB) decided to liquidate securities holdings and move the funds to regular reserve accounts, something which sounds reasonable given the fact that (safe) government yield curves are quickly turning negative. Since both short-term securities and money market (eurepo) rates are now negative, a euro peg by central banks such as SNB will not provide significant interest income and will make the peg more difficult.

New MRO

This week’s MRO was quite lower than the maturing one, at €156,7bn compared with €163,6bn. This is a positive sign although i ‘m curious to see if ‘Other Claims’ (ELA) increase in next week’s statement.

ECB released its weekly statement for the week ending on 6 July.

Asset Side

On the asset side, weekly USD liquidity-providing operations increased from $2.6bn to $4.3bn (+$1,7bn), continuing the trend of growth in USD swap usage. Lending to credit institutions dropped by €17.3bn through a smaller MRO of €163.5bn (16.7bn change) as well as an decrease in LTRO (-€1.5bn). ‘Other Claims’ (ELA) decreased (after a very long time) by €2.2bn. Both should be seen as signs of stabilization.

Liabilities Side

Banknotes increased by 3.8bn while bank reserves decreased by €4.9bn. A positive development was the drop in ‘Deposits related to margin calls’ by €2.4bn. General government accounts decreased €11.4bn (a large change).

After steadily increasing during the last few months, ‘Liabilities to non-euro area residents’ finally posted a drop of €10.2bn this week, following stabilization of last week. The change is quite significant, although it is hard to tell if the cause was a reversal of euro outflows or central bank asset managers finally deciding to invest (increased) FX reserves in liquid assets instead of keeping them in reserve accounts. Data from the SNB (such as amounts in sight deposits) point mainly to the second explanation.

New MRO

This week’s MRO was more or less the same as the maturing one (at €163.7bn). This is another sign of  total liquidity needs stabilizing. Last week’s projections of lower current account holdings and large fund movements from government accounts seem to have been confirmed. A 1-month LTRO was also tendered with the amount lent settling to €24.4bn, an increase of €5.5bn compared with the maturing LTRO. So it seems that total liquidity provision increased.

SMP Fixed Deposits

What was quite interesting are the latest SMP fixed term deposits auction results. Since the ECB dropped the deposit rate to zero, current accounts and fixed deposits are the only ‘risk-free’ assets available from the ECB which provide a positive rate of return. As would have been anticipated, rates on the deposit dropped to a marginal rate of 0.03%, compared with 0.26% at the last auction, while bidding was quite high at €424.8bn (with €211.5bn allotted). The remaining funds (€213.3bn) should be considered as liquidity available for lending in the money markets while the rate achieved provides an estimation for short-term (weekly) repo loan rates in the Euro area which continue to drop to extremely low numbers.

ECB released its weekly statement for the week ending on 29 June.

Asset Side

On the asset side, weekly USD liquidity-providing operations increased from $1.6bn to $2.6bn (+$1bn), continuing the trend of growth in USD swap usage. Lending to credit institutions increased by €20.3bn through a larger MRO of €180.4bn as well as an increase in LTRO (+€8.2bn). ‘Other Claims’ (ELA) did not post any significant change which is a sign of stabilization.

Liabilities Side

Bank reserves increased by €21.5bn, mainly due to a large decrease in current accounts (€19.6bn). What is quite worrying is the fact that ‘Deposits related to margin calls’ increased by almost €4.3bn, which means that assets posted as collateral in ECB liquidity operations lost value. It will be interesting to see if this change is permanent or reverses course after the positive results of last week’s Euro summit. General government accounts decreased €4.3bn.

A very positive development was the fact that ‘Liabilities to non-euro area residents’ were stable last week, which means that (especially accounting for increased USD swap usage) there actually were some net euro inflows after a long time.

New MRO

This week’s MRO was lower than the maturing one (at €163.6bn, down €16.8bn from €180.4bn). Since the reserve maintenance period ends on 10 July and average current account holdings were around to €118.5bn (compared with a reserve requirement of €106.9bn), it is possible that the latest lower MRO bid is related with lower needs for reserve requirements and will be reflected in lower current account holdings (they were €95.9bn today). Still, total liquidity is higher today (deposit facility + current accounts + fixed term deposits) at €1112.9bn, compared to €1100bn in the financial statement, which might suggest funds movement from government accounts.

ECB released its weekly statement for the week ending on 22 June. Although the past week was highlighted by a significant increase in risk apetite (with a corresponding fall in Spanish/Italian sovereign yields), the statement still outlines considerable stress in money markets:

Asset Side

On the asset side, total USD liquidity-providing operations (7 and 84-day) increased from $8.7bn to $11.5bn (+2.8bn), marking a long trend of growth in USD swap usage. Lending to credit institutions increased by €34.2bn this week through a larger MRO of €167.3bn. On the other hand, ‘Other Claims’ (ELA) decreased by €5.3bn, lowering total liquidity creation to a bit under €29bn. It seems that Greek deposit outflows probably reversed course and returned to home country banks.

Liabilities Side

Bank reserves were lower by €21.2bn, mainly due to a large decrease in current accounts (€53.9bn) while usage of the deposit facility was larger by €34bn (with most of the change probably relating to reserve ratio maintenance). General government accounts on the other  hand  grew €42.3bn.

Liabilities to non-euro area residents continued to increase, this week growing by €10.9bn. Even if we account for growth in USD swap usage, outflows from the Euro area kept their upward trend. As the chart below highlights, (since end of March) the ECB balance sheet expansion has been mainly used to finance outflows from the euro area (or USD funding not available in the private markets) with a total net change of more than €73bn. The sovereign crisis has started to morph in a euro confidence crisis.

New MRO

This week’s MRO was again larger than the maturing one (at €180.4bn, up €13.1bn from €167.3bn). Continued and increasing resource to the weekly refinancing operations makes it clear that the 3Y-LTRO excess liquidity is quite used up.

Spanish T-Bill auction

Today, Spain auctioned 3 and 6-month T-Bills. Rates settled at 2.362% for the 3-month bills and 3.237% for the 6-month.Given the fact that the ECB will continue to provide 3-month LTROs (it just announced a new one with 27/6 as tender date) and Spanish banks can post these securities to the ECB with minimum haircuts (to borrow at the MRO rate) and avoid any liability mismatch, these rates are a disaster and show lack of demand even from domestic players, at least without a very large premium. The results are even more worrying if one accounts for the fact that T-Bills are not considered to have any significant default risk (based on the Greek PSI experience). Comparing the t-bill rates with eurepo rates (a bit under 0.1% for both 3 and 6 month tenors) paints an even darker picture.

Cyprus

Cyprus government bonds are no longer eligible as collateral for refinancing operations with the European Central Bank after the country’s credit ratings fell below the minimum standard (from all rating agencies) following the bailout request by the local government. That will probably lead to an increase in ELA liquidity from the central bank of Cyprus which already provides a substantial amount of it to local banks (equal to €5.7bn in May while lending through refinancing operations was close to €6.1bn).

ECB released its weekly statement for the week ending on 15 June. I feel that i might be starting to sound like a broken record but the stressed environment since last week has not changed one bit:

Asset Side

On the asset side, the 7-day USD liquidity-providing operation increased from $1.5bn to $2.4bn. A marginal increase but still significant, especially since last week’s operation was also $1bn higher than the previous one. Lending to credit institutions increased by €21.2bn this week, both through higher settled amounts at the MRO €(12.4bn increase) and in the 1-month LTRO (€7.9bn)  while resource to the marginal facility also increased by €1bn to a total of close to €3bn.

ELA increased by €2.2bn, which should probably be related to deposits outflows in Greece before this Sunday’s general elections. It will be interesting to see if total amounts decrease this week after Greece elected a pro-bailout government.

Liabilities Side

Bank reserves increased by €16.9bn. What is interesting is the fact that the increase was due to current accounts increasing more than the outflows from the deposit facility. Given the marginal credit expansion in the Euro area and the large liquidity injection through the two 3Y-LTROs, covering reserve requirements should normally only require moving funds from the deposit facility to current accounts. Although the numbers are only aggregates this might suggest difficult conditions for certain credit institutions.

Liabilities to non-euro area residents continued to increase, this week growing by €9.2bn. If one accounts for the increase in the dollar swap (around $0.7bn), outflows from the Euro area (to Switzerland?) continued at a steady pace. Government accounts decreased by €6.1bn.

New MRO

This week’s MRO came much higher than the maturing one (at €167.3bn instead of €131,8bn, an increase of €35.5bn). This amount of increase is definitely alarming, given the current situation in the periphery countries (especially Spain and Italy).

Spanish T-Bill auction

Today, Spain auctioned 12 and 18 month T-Bills. The results were rather terrible with the 12-month auction settling at 5.074% while the 18-month at 5.107%. Given the fact that (Spanish) banks can post the T-Bills to the ECB and receive liquidity at the MRO rate (and the fact that such debt instruments are not included in any debt restructuring as became evident in the case of the Greek PSI which makes them very close to risk-free), these rates should indicate that Spanish banks:

  • are facing very high outflows to the rest of the world with limited access to the interbank market. That increases their cost of funds since most of the liquidity provided by the ECB (LTRO) operations travel abroad while the cost of funds remains with the banks.
  • their capital position is stressed (as is evident in Bank of Spain data) while the opportunities for new profitable loans to the domestic private sector are extremely limited. Only large carry trades on the government debt securities are left to provide banks with profitable positions.
  • fear more rating downgrades on Spanish debt which should push it to the ‘Step 3’ backet where haircuts (on maturities up to 1 year) increase to 5.5% instead of 0.5% and to 6.5% instead of 1.5% (for maturities between 1-3 years). Already LCH increased its margins on Spanish debt, making repos even more costly.

Overall, in my view the Eurozone is in a clear state of slow disintegration. I really hope that realism will prevail as soon as possible.

ps: Italian bond margins were also hiked by LCH.