How Bad Do Things Have To Be For The Fed And The Ecb To Talk Of Easing… On The Same Day
Phoenix Capital Research | Apr 13, 2012 05:51AM ET
Once again the markets began to tank. And once again several Fed stooges jumped forward to claim more easing could be coming. And so the markets, having failed to understand that the Fed cannot ease despite the Fed failing to unveil QE 3 for EIGHT straight FOMC releases, exploded higher.
We got the same nonsense across the pond where the ECB hinted at more bond purchases. In this case the insanity is of an even greater scope as over 25% of the ECB’s balance sheet is already PIIGS debt AKA toxic garbage.
However, it’s quite telling that both Fed and ECB officials decided it was time for a verbal intervention. The markets normally this behavior was primarily a Fed policy. To see not one but TWO Central Banks engaging in it on the same day smells of real desperation/ concern.
What on earth could the Fed and ECB be so afraid of?
The Bank of International Settlements provides a hint, namely that as of June 2011, EU banks had a liquidity shortage to the tune of some €2.78 trillion.
Quantitative impact study results published by the Basel Committee
The Committee also assessed the estimated impact of the liquidity standards. Assuming banks were to make no changes to their liquidity risk profile or funding structure, as of June 2011, the weighted average Liquidity Coverage Ratio (LCR) for Group 1 banks would have been 90% while the weighted average LCR for Group 2 banks was 83%. The aggregate LCR shortfall is €1.76 trillion which represents approximately 3% of the €58.5 trillion total assets of the aggregate sample. The weighted average Net Stable Funding Ratio (NSFR) is 94% for both Group 1 and Group 2 banks. The aggregate shortfall of required stable funding is €2.78 trillion.
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