It could. It totally could. But, for now, the European Central Bank isn’t going to make banks pay it for the privilege of holding onto its money overnight. And so, in spite of the mounting bad news, the euro soared to a one-month high against the dollar. Read more »
Ooh look there’s another Europe thing. In this thing, Europe, in the form of the almost-existing ESM,* will take equity (?) stakes in troubled Eurozone banks, rather than its previous plan of buying senior debt of troubled Eurozone sovereigns so those sovereigns can invest the proceeds in equity stakes of their troubled banks.
There has been a lot of talk about collectivizing some European government debt, with people proposing plans in which Europe as a whole would be responsible for the amount of each country’s debt under X% of GDP, or over Y% of GDP, or other. You can think of this as sort of a more financialized, more palatable, and more targeted version of that: instead of collectivizing an arbitrary dollar amount of each country’s sovereign debt, you collectivize the amount needed to bail out that country’s insolvent banks. This favors peripheral countries (because they have most of the bad banks, or at least the bad banks whose badness expresses itself in the form of insolvency rather than criminality), yet also has a certain appeal to Euro-core financial bureaucrats because the collectivized debt is going to bankers like them rather than to over-vacationed Greek pensioners etc. And money being fungible it’s not the worst outcome for the pensioners etc. either.
The other thing about this new Europe thing is that the EFSF/ESM can stabilize peripheral government debt in the market without imposing new austerity conditions and without taking seniority, though people have doubts about that because you can always flip yourself into seniority if you’re the lender of last resort. And there are many other details to be worked out and I invite you to read about them from someone who knows something about them. But the new news is the bank capitalizing, and that seems promising; the syllogism is I guess (1) this is TARP and (2) TARP kind of worked, ergo (3) this will kind of work. Read more »
You can’t argue too much with the SEC’s gentle suggestion that maybe banks should tell people, in a consistent format, what’s up with their European debt exposure. It seems to be a thing that is on investors’ minds, so why not have the SEC try to put their minds at ease:
“Our staff has been working with banks to improve their disclosure about sovereign-debt exposure for several months,” SEC Chairman Mary Schapiro said in a written statement released Monday. “Even so, I understand this is an area of focus and uncertainty that could really benefit from further transparency and consistency, particularly as we head into annual reporting season. I think the staff’s guidance should help achieve that goal.”
Yep. The release is here and contains a good list of things you might want to know, including things like “The effects of credit default protection purchased separately by counterparty and country,” “The fair value and notional value of the purchased credit protection,” and “The types of counterparties that the credit protection was purchased from and an indication of the counterparty’s credit quality.” It’s not exactly a standardized form for disclosure that will allow everyone to do detailed comparison among the banks and/or sleep well at night, but it should at least shame people into giving reasonably detailed substantive information so that when your bank blows up you at least won’t be surprised at which European country did it. That seems good. It even seems like what the SEC is supposed to do.
The Journal, ever fair, finds a token objector, sort of: Read more »
So Europe’s all better now, or something. The banks are anyway. They have had the money flung at them, in the form of the European Central Bank advancing them tons of medium-term funding at attractive rates and with pretty chill collateral requirements, and now they just have to sit back and be awesome.
Since they’re now all flush and awesome, various people have come out of the woodwork to help them spend their money. (I’m happy to help too! Call me!) One possible answer is “bail out your reprobate governments,” which FT Alphaville have dubbed the “Sarko trade” after a guy who said this:
French President Nicolas Sarkozy said the ECB’s increased provision of funds meant governments in countries like Italy and Spain could look to their countries’ banks to buy their bonds. “This means that each state can turn to its banks, which will have liquidity at their disposal,” Sarkozy told reporters at the summit in Brussels.
Alphaville point to a equity research note by Morgan Stanley, who estimate that the size here is maybe less than Sarkozy hoped for but much, much more than zero. You can have various views on the desirability and/or plausibility of this.
Another thing the banks could do is take all these gobs of money and actually go lend it to people to, like, buy Portuguese villas and stuff. This seems very broadly speaking like a good thing for them to do, since banks lending to people and businesses is sort of their job. One guy likes this idea: Read more »