Squeezed bank dealers quit European government bond markets

Reuters ^ | 21 January 2016 | John Geddie

[Lorianne]

rise in the number of banks giving up primary dealer roles in European government bond markets threatens to further reduce liquidity and eventually make it more expensive for some countries to borrow money.

Increased regulation and lower margins have seen five banks exit various countries in the last three months. Others look set to follow, further eroding the infrastructure through which governments raise debt.

While these problems are for now masked by the European Central Bank buying 60 billion euros ($65.5 billion)of debt every month to try to stimulate the euro zone economy, countries may feel the effects more sharply when the ECB scheme ends in March 2017.

Since 2012, most euro zone governments have lost one or two banks as primary dealers, while Belgium -- one of the bloc's most indebted states -- is down five.

Primary dealers are integral to government bond markets, buying new issues at auctions to service demand from investors and to maintain secondary trading activity. Without their support, countries would find it harder to sell debt, forcing them to offer investors higher interest rates.

Over the last quarter alone, Credit Suisse pulled out of most European countries, ING quit Ireland, Commerzbank left Italy, and Belgium did not re-appoint Deutsche Bank as a primary dealer and dropped Nordea as a recognised dealer

[babble-on]

Same thing is happening in the US. Turns out when you forbid financial institutions from trading, you get less liquid financial markets.

[immadashell]

I would bet that, just like the Federal Reserve, there has never been an audit of the European Central Bank. Be sure to read up on the Weimar Republic (Fergusson, The Death of Money )

[familyop]

Read between the lines, and you’ll see the PIIGS again.