Adventures with coordinated statements, central banking edition

By Felix Salmon
November 30, 2011
Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Swiss National Bank, and the Federal Reserve.

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If six different central banks coordinate a big liquidity operation, you end up with six different press releases, from the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Swiss National Bank, and the Federal Reserve.

All of them start the same way, talking about how they’re coordinating action, cutting the interest rate on their liquidity operations by 50bp, and agreeing to provide such operations in each others’ currencies, in future, should that become necessary. Think of it as a holiday greetings card from the banks to the market.

And then, underneath the “happy holidays” boilerplate, each individual central bank adds a little personalized note about itself. Here’s how the ECB describes what it’s going to do:

The ECB will regularly conduct US dollar liquidity-providing operations with a maturity of approximately one week and three months at the new pricing…

In addition, the initial margin for three-month US dollar operations will be reduced from currently 20% to 12%.

This isn’t some kind of hypothetical facility, it’s a very real injection of cheap liquidity into the European markets, and it is desperately needed.

Across the Channel in London, the Bank of England is saying essentially the same thing: the window’s open, fill yer boots!

The Bank will continue its weekly tenders of U.S. dollar funding at fixed interest rates each Wednesday until further notice, with counterparties able to borrow unlimited amounts against eligible collateral.

In Switzerland the SNB is a little more subdued, but in substance identical:

The SNB intends to continue conducting US dollar liquidity-providing repo operations at terms of one week and three months.

The other three central banks, by contrast, all fall over themselves to say that they’re just being good global citizens, here, and don’t really face any liquidity pressures at home. Yet. Here’s Japan:

Financial conditions in Japan have continued to ease and Japanese financial institutions do not face difficulty with funding in foreign currencies. There is, however, a possibility that Japan will be adversely affected, should conditions in global financial markets deteriorate further.

And here’s Canada, which goes further still and says that actually, its window is not open right now, but it might open it in future, should it be so inclined.

The Bank of Canada judges that it is not necessary for it to draw or offer operations on any of these swap facilities at this time, but that it is prudent to have these agreements in place. Should these facilities be drawn on, the details of the liquidity facilities provided would depend on the specific market circumstances at the time.

Finally, we have the Fed.

U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses.

The way I read this, the Fed is not actually going to be providing liquidity to the market at the new rates. Europe might be facing a liquidity crunch right now, but the US isn’t, and so the Fed is keeping this particular bazooka in its closet for such a time as it becomes necessary to bring it out.

The difference between the ECB and the Fed is, I think, instructive. The Fed has always been willing to provide liquidity to the markets in extremis, and partly as a result banks have up until now been happy to lend to each other. The ECB’s status as lender of last resort is much more dubious, however, and so it needs to come out and actually do these things if the market’s going to believe that they’re real.

Needless to say, this is not a healthy state of affairs. Here’s how that Exane BNP Paribas note on liquidity explains it:


Today’s announcement strengthens and widens the liquidity channels from the central bank to individual commercial banks; it can’t in and of itself get those banks lending to each other again. And we won’t be out of the woods, in Europe, unless and until that happens.


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Crossing the Global Rubicon:

It is being broadly reported, as we speak, that the Obama administration will NOT allow more US taxpayer money to be used to bail-out European banks, as reported in this very USA Today article:

“And despite Obama’s promise to “do our part,” Carney said no U.S. taxpayers’ funds are needed, even if the International Monetary Fund is called on to help in any bailout.”

And YET, this key NYT front-business-page article this morning, says that the US FED WILL contribute millions/billions in ‘no interest’ money from the US FED window to European Banks: ss/central-banks-move-together-to-ease-d ebt-crisis.html?_r=1&hp

Soooooo, “what we have here is a failure to communicate” … OBAMA’s BIG LIE.

Here’s my comment to the NYT and USA Today:

Obama promised just yesterday that U.S. citizens could be sure that he would not allow any American funds (that might further peonize them) to be diverted to Europe.

Oh well, another Obama promise made AND BROKEN, but this time in real-time — so fast was the lie that it makes one’s head spin.

Best luck and love to Occupy Empire.

Liberty, democracy, justice, and equality

Alan MacDonald

PS. Oh, I know what the confusion is in Obama’s apparent bold-faced lie to American citizens. He’s actually speaking honestly, but as the faux-Emperor of the world, rather than just the president of our former country —- since what we still consider ‘our’ country is now the nominal HQ of the disguised corporate/financial/militarist Global EMPIRE, which hides behind the facade of its modernized TWO-Party ‘Vichy’ sham of faux-democratic and totally illegitimate government — just as an earlier Nazi Empire tried to hide behind its crude and single-party ‘Vichy’ regime in France c. 1940.

It is now necessary for the global corporatist media to clearly articulate anything Obama says as either coming from the nominal president of the country previously called America, or from the mouth of the First faux-Emperor of the 21st century Global Empire — the real and accomplished Fourth Reich.

Posted by amacd | Report as abusive

alan, copy and paste much?

Posted by GRRR | Report as abusive

This appears to be necessary but not sufficient. It gives a big friggin liquidity firehose that banks can access that should also tamp down on currency risk since they can borrow in currencies other than the euro. But it doesn’t fix the underlying sovereign debt issue. So, it’s a good step but until we find some way to backstop the sovereign debt we’re not out of the woods.

Posted by HipsterBatman | Report as abusive

Amacd, Obama doesn’t control the Fed. He can appoint the chairman and governors, when the current term expires, but they don’t report to him. Ben Bernanke, appointed by Bush (and renewed by Obama in a worthless display of bi-partisanship) is chairman of the Fed. Unlike cabinet members, Obama can’t fire Bernanke.

In any case, if you think the U.S. economy won’t be impacted by a collapse of the european financial system, just look at what the stock market does every time one of their smaller economies appears on the verge of default. As much as so many people don’t like it, we’re all kind of dependent on others. If you want to change that, get people to stop burning oil and buying Chinese consumer products. and then figure out a way to replace all those U.S. products that foreigners buy ($1.3 trillion in 2010). When they crash, they’re not going to have any money to buy our stuff, and it’s unlikely China will loan them money to finance imports from the U.S..

Posted by KenG_CA | Report as abusive

Theme song for the day: Dg

Posted by TFF | Report as abusive

Felix, you were wrong about the secret loans, THIS is what the lender of last resort looks like.

Posted by bpmf1911 | Report as abusive

This is ridiculous.
Its all about US elections.
Then, when Obama is given his 2nd term he can continue the overall plan.
Can’t really have a “wackadoodle” in there,(Presidency).
Strreeettcch it out. Just keep the “Melt-Down” over the Horizon.

Posted by zebra69 | Report as abusive