Posted on 10/04/2008 12:23:44 AM PDT by bruinbirdman
Europe’s leading central banks announced further emergency liquidity operations on Friday as the deep freeze in money markets continued without any sign of a thaw.
All week, central bank officials have been evolving into the provider of all finance to the European banking system. They are now planning for that position to continue for a long time.
The Bank of England announced a dramatic increase in its three-month lending to British banks on Friday, saying it was willing to offer cash against a wider range of collateral in an effort to ease the strains in wholesale money markets.
“In these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity,” Mervyn King, the governor of the Bank of England, said.
The European Central Bank threw open the doors for thousands of banks to gain access to its so-called fine-tuning operations for overnight auctions. From Monday, 1,700 European banks will be able to take part in the ECB’s quick tenders of cash, rather than the 130 banks that do so at present.
The central banks’ moves will increase their role in financial intermediation as banks refuse to lend to each other and the normal providers of liquidity to the banking system, such as the money market funds, continue to invest elsewhere.
The liquidity operations would have been unthinkable a year ago but have become necessary since the wholesale money markets want into a deep freeze after the failure of Lehman Brothers. Rather than being the lender of last resort, central banks have found that lack of confidence within private money markets has put them in the position of being – at least temporarily – the lender of only resort.
Central bank officials have long said they do not want to get into such a position but have been forced to act because the private market does not currently exist.
The Bank of England said it would provide £40bn (€51bn, $71bn) to banks on Monday for three months, matching the auction it carried out this week, putting at least 16 times more term funding into the British banking system than it expected for this period.
It added that it would hold further three-month auctions every week, at least until November 18, indicating that it does not foresee a quick return to normal market conditions.
In a sign that banks might be running short of the high-quality collateral usually necessary for Bank of England funding operations, the Bank also widened the scope of what it would accept.
On Friday, it said it would accept triple A-rated US securities backed by student, consumer and auto loans, senior tranches of US commercial mortgage-backed securities, US covered bonds, triple A-rated tranches of corporate bonds, and a wide range of other asset-backed commercial paper.
It will, though, refuse to lend cheaply against this collateral and is also insisting on steep haircuts for the weaker collateral, offering as little as 60p in the pound for some foreign currency mortgage-backed securities.
“It will, though, refuse to lend cheaply against this collateral and is also insisting on steep haircuts for the weaker collateral, offering as little as 60p in the pound for some foreign currency mortgage-backed securities”
wonder how they are valuing this.
I’d also be reluctant to lend money to bad credit risks! I thought that’s how this crisis started in the first place!
Doesn't matter. The stuff is all guaranteed by Uncle Sam now.
"On Friday, it said it would accept triple A-rated US securities backed by student, consumer and auto loans, senior tranches of US commercial mortgage-backed securities, US covered bonds, triple A-rated tranches of corporate bonds, and a wide range of other asset-backed commercial paper. "
Don't see a similar offer for EUrotopia stuff.
yitbos
Ha, ha. Bet you thought it was to help out the poor student. It was to bail out the banks who lent money to students and then sold those loans to some ferner.
yitbos
“Ha, ha. Bet you thought it was to help out the poor student. It was to bail out the banks who lent money to students and then sold those loans to some ferner.”
I am under no illusions on the ultimate beneficiaries on this matter, or at least I think I am not.
This is why governments are being forced to take action.
yitbos
FOR bad credit risks, and they aren't. They are lending for Triple A rated securities,(guarantied by uncle Sam) at a higher interest rate.
For weaker collateral (securities), they are only lending 60p on the pound for 'weaker' securities. At a high interest rate to boot.
This could be indicative of Paulson's starting price for junk.
Brits will loan 60p on the pound, the securities are the collateral. Banks can take the pence and walk away. Paulson will buy the stuff. Sounds like 60% is the going starting rate.
yitbos
So I guess the bank of England will be sending out “bobbies” to collect from American students defaulting on their loans.
how many pence in a pound? 100?
or better yet, what is 60p worth in dollars?
I remember President Reagan sending me a bill in 1984 for a GI student payment I cashed (1976) before I dropped out of grad school. This was 8 years after I cashed it. Jimmy Carter was not interested.
I dare say a Hussein Osama will not be too interested in student defaults
yitbos
Yes. So, that makes 60p and easy 60%.
Pound is worth $1.7716 right now. Wow, just looked it up. It has really been taking a hit. Worst in 16 years.
yitbos
yitbos
If the rest of Europe follows France into official recession, it doesn't look good for our exports.
$1.0630
reluctant to lend money to bad credit risks!
According to Michelle Bachman R-Mn, they still can, that’s one reason why she didn’t vote for it
(by the way, most higher edjamakion rackets are raising the cost of their paper next year. It's such a good deal, for the student, and the nation. Right? Right?)
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