ECB Exit Strategy and Counterparty Risk

By end-September 2010, about €225 billion in three-, six- and 12-month longer-term refinancing operations came to maturity. Eurozone banks had the option to roll the maturing loans over into new three-month and six-day loans at a 1% fixed rate and full allotment. Banks chose only to roll over about €145 billion and repay the rest, thus significantly reducing the amount of excess reserves deposited at the ECB. Indeed, according to the latest available data, the amount of excess reserves declined to about €30 billion in October from almost €100 billion in September. As a result, the unsecured three-month interbank lending rate (EURIBOR) spiked to 96 basis points, while the effective EONIA overnight rate is also gradually trending upward, toward the main refinancing rate of 1%.

Spread Between 3-Month Repo Rate and 3-Month Government Bills

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Key events: 1) Bear Stearns rescue; 2) Lehman bankruptcy Source: Bloomberg, RGE

Latin American CDS: Fully Recovered, What are the Risks?

Editors Note: The Following RGE premium content, “Latin American CDS: Fully Recovered, What are the Risks?” is available to paid clients. Bertrand Delgado, Elisa Parisi-Capone and Alejandro Rivera, take a close look at Latin America’s 5 year CDS fundamental and counterparty risk dynamics.  They examine the extent to which counterparty risks explain the sharp movement […]

Financial Meltdown Reshaping Wall Street

In a dramatic turn of events, the Federal Reserve Board extended a $85bn secured credit line at LIBOR+850bp to AIG, the biggest insurer in the world, in exchange for a 79.9 percent stake in the company. As Lehman, AIG is a large player in the off-balance sheet credit derivatives and structured finance market, but with […]

Goldman’s Super-SIV: Some Questions

Anousha Sakoui and Gillian Tett of the FT have an excellent overview of the mechanics of Goldman’s ‘Cheyne SIV Restructuring Model’: “- Assets held by the SIV will be auctioned to establish a transparent cash value. About seven investment banks will be invited to bid on buckets of assets as well as the whole portfolio. […]

Is the Corporate Sector EMU’s Achilles’ Heel?

The ECB reports in its April Monthly Bulletin (p.17): “The annual growth rate of MFI loans to non-financial corporations rose to 14.8% in February, up from 14.5% in the previous month. Overall, in the seven months from August 2007 to February 2008, total value of MFI loans to euro area non-financial corporations was €312 billion, […]

The Black Swan in the European Money Market

In the words of Jean-Claude Trichet (January 23, 2008): “Once the Governing Council has defined the monetary policy stance necessary for maintaining price stability in the medium term, in line with its mandate as defined by the Treaty, the ECB has the responsibility to also ensure the smooth functioning of the money market we influence. […]

No Credit Crunch in the Euro Area?

Eurointelligence this moring reports the following from the Frankfurter Allgemeine: “A cooldown yes, but no recession for the euro area In its monthly economic report, Frankfurter Allgemeine writes that an increasingly probable US recession would affect the euro area economy, but would not lead to a recession over here. One argument is the still continued […]