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Lender of Last Resort
One can sympathise with Berlin. But sharing debts with Italy and Spain was implicit when they agreed to launch the euro.
Ambrose Evans-Pritchard, Daily Telegraph 08 October 2008
Very Important Article
Den franska storbanken BNP Paribas har en exponering mot grekiska
statsobligationer på 5 miljarder euro (49 miljarder kronor).
E24 6/5 2010
The crucial problem on this side of the Atlantic is that the largest European banks have become not only too big to fail, but also too big to be saved.
The total liabilities of Deutsche Bank (leverage ratio over 50!) amount to about €2,000bn (more than Fannie Mae) or more than 80 per cent of the gross domestic product of Germany.
This is simply too much for the Bundesbank or even the German state, given that the German budget is bound by the rules of the European Union’s stability pact
Daniel Gros and Stefano Micossi, Financial Times, September 23 2008
European banks harder hit by credit crunch
Of the $387bn in credit losses $200bn was suffered by European groups and $166bn by US banks,
Gillian Tett, FT June 5 2008
Riksbanken om Krisberedskap och Lender of Last Resort-funktionen
Klicka här
Bank of England about Lender of Last Resort
Click here
Fed NY about Last Resort
Click here
Remarks by Chairman Alan Greenspan
More fundamentally, we should recognize that if we choose to enjoy the advantages of a system of leveraged financial intermediaries, the burden of managing risk in the financial system will not lie with the private sector alone. Leveraging always carries with it the remote possibility of a chain reaction, a cascading sequence of defaults that will culminate in financial implosion if it proceeds unchecked. Only a central bank, with its unlimited power to create money, can with a high probability thwart such a process before it becomes destructive. Hence, central banks have, of necessity, been drawn into becoming lenders of last resort.
September 25, 2002
Axel Weber, president of Germany’s Bundesbank, may rue his choice of words eight days ago.
The bail-out of IKB, a previously little-known listed bank that had been caught in the fallout from the US subprime mortgage crisis earlier in August, was an “isolated, institution-specific incident”, he said.
By late last Friday night, it had happened again.
Financial Times 22/8 2007
Med nödkrediter på nästan 900 miljarder kronor,
mer än man pumpade ut efter terrorattackerna den 11 september 2001,
lyckades Europeiska centralbanken avvärja en allmän panik på Europas finansmarknader.
Gunnar Örn, Dagens Industri 8/10 - den 10 augusti - 2007
Den svenska riksbanken har nämligen blivit en något stympad ”lender of last resort”. Den kan kanske inte längre i tillräcklig kvantitet tillhandahålla de nationella betalningsmedlen?
Ur Margit Gennser: EMU - en kritisk analys, Fischer & Co 1997
Det visas att man i Sverige helt felbedömde den Europeiska
centralbankens (ECB) roll inom Eurosystemet.
ECB är varken systemets gemensamma centralbank eller ens en sann centralbank.
Den har därför varken förmågan att utjämna inflationsskillnader inom EMU, som Lindahl ansåg
vara den centrala uppgiften för huvudcentralbanken, eller att verka som ”lender of last resort”.
Denna viktiga institution saknas helt inom Eurosystemet
Otto Steiger, Ekonomisk Debatt nr 2/2007
J. Pierpont Morgan, stemmed the Panic of 1907, Acting, in effect, as lender of last resort from his Wall Street office, he was briefly feted before Americans realised the danger of having such power vested in one man.
After his death in 1913 the Federal Reserve was set up.
The Economist 17/5 2007
At least since 1823, when Byron's Don Juan described “Jew Rothschild, and his fellow Christian Baring” as the “true Lords of Europe”, investment bankers have inspired awe, envy and, rightly or wrongly, a measure of disdain. Exactly 100 years ago the undisputed patriarch of the modern industry, J. Pierpont Morgan, stemmed the Panic of 1907, a financial crisis caused by unregulated trusts (the hedge funds of their day). Acting, in effect, as lender of last resort from his Wall Street office, he was briefly feted before Americans realised the danger of having such power vested in one man. Cartoonists then mercilessly mocked him. After his death in 1913 the Federal Reserve was set up.
The European Commission ran an exercise in which it pretended a commercial insolvency was threatening to bring down two banks
In April last year the European Commission ran an exercise in which it pretended a commercial insolvency was threatening to bring down two banks, one of them big.
The Economist print 18/1 2007
In May the European Central Bank rehearsed the collapse of a large European institution. The British financial authorities also had two drills in the past year, one of which examined the impact on a British clearing bank of the failure in London of a foreign banking subsidiary.
Putting some doubt into bankers' minds—“constructive ambiguity”, as the regulators put it—is a guard against moral hazard. If commercial lenders assume the central bank will always bail them out when things go wrong, they may be tempted to lend recklessly.
The biggest banks, to which regulators apply the ungainly term Large and Complex Financial Institutions (LCFIs), straddle so many markets, in so many countries, that a national authority cannot act alone.
Nordic regulators are the keenest on financial war games, but so far even they have not included the banks themselves as active participants. “We are moving in that direction,” says Göran Lind, an adviser to the Sveriges Riksbank, the Swedish central bank.
Cross-border banks require a single regulator
Wolfgang Munchau, FT 1/4 2007
With the arrival of the euro, responsibility for monetary policy was transferred from national central banks to the European Central Bank. But this did not apply to banking supervision, which remained under national control – either within the central banks themselves or with independent supervisory agencies.
As long as there is no crisis, the system can obviously be made to work. But at some point, supervisors have to take tough decisions – such as whether a bank should be bailed out or closed. It may well be that one supervisor wants to bail out a bank and another does not; or that both back a bail-out but cannot agree on how to split the costs.
Financial Integration in Europe, Strengthening the EU Framework for Cross-border Banks, p.33ff, ECB, March 2007, www.ecb.int
Every nation state has a system of supervision and control of its financial sector, including a lender of last resort, to guarantee the soundness and stability of the financial system.
Presently, such a pan-European set of institutions is lacking.
Lars Jonung, CNN
The Lender of Last Resort in the European Single Financial Market
Garry J. Schinasi and Pedro Gustavo Teixeira, IMF Working paper
A Symposium Sponsored By The Federal Reserve Bank of Kansas City
Very impressive pdf 9 MB