Interesting post on Marginal Revolution, What is the difference between LOLR to banks and LOLR to governments?
Cowen: “Is this transfer of the subsidy to the sovereign a bug or a feature of the plan? Perhaps this is how the EU/ECB, viewed for a moment as a consolidated entity, will circumvent EU law to finance troubled governments. Is it possible that by changing collateral requirements they can alter the flow of funds to governments in a discretionary, ever-changing, and relatively non-politicized fashion? Does this satisfy the “too complicated for people to complain about” provision?”
Reply:
Good post. It is probably a feature, not a bug, and it is surely “too complicated for people to complain about,” at least for now.
This isn’t a new thing, though. The ECB has been lightening up collateral requirements for a few years now, presumably in part to finance weak governments through the back door. Remember when the ECB broke its rules and began accepting BBBminus-rated collateral?
Relevant Link:
Peter Garber, Deutsche Bank. The Mechanics of Intra Euro Capital Flight
Cowen: “Is this transfer of the subsidy to the sovereign a bug or a feature of the plan? Perhaps this is how the EU/ECB, viewed for a moment as a consolidated entity, will circumvent EU law to finance troubled governments. Is it possible that by changing collateral requirements they can alter the flow of funds to governments in a discretionary, ever-changing, and relatively non-politicized fashion? Does this satisfy the “too complicated for people to complain about” provision?”
Reply:
Good post. It is probably a feature, not a bug, and it is surely “too complicated for people to complain about,” at least for now.
This isn’t a new thing, though. The ECB has been lightening up collateral requirements for a few years now, presumably in part to finance weak governments through the back door. Remember when the ECB broke its rules and began accepting BBBminus-rated collateral?
Relevant Link:
Peter Garber, Deutsche Bank. The Mechanics of Intra Euro Capital Flight
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