As always, @fwred has the ultimate ECB analysis. "After whatever it takes, #WhateverTheF."
But with a cooler head, I'd like to point up that the package is a disappointment on govies/rates, but it's MASSIVE for banks.
But with a cooler head, I'd like to point up that the package is a disappointment on govies/rates, but it's MASSIVE for banks.
Just the new TLTRO thing is huge: the loan growth benchmark is now 0 (LOL), the amount available is now €2.3tn - and this will be at -0.75% And if you don't know what the do with the cash, depo at -0.5%. U can do the math of this subsidy.
And what about this buffer thing the SSM announced? Pretty sure the algos didn't pick up on that one. But if you add 2.5% (CCB) + 1.5% (average P2G) and multiply by the approx. 20tn€ RWA in the European banking sector...
That is effectively a 800bn€ capital relief. Yes, you read that correctly. 800bn€. If this isn't massive, I don't know what is.
To be clear, nobody is giving that money to banks & banks won't give that money to shareholders. But they now know they have a 800bn buffer to weather this crisis: absorb losses, lend more, etc. In other terms, the SSM is telling banks: support your customers, we have your back
On top of that, there is a huge amount of stuff that is going to happen behind the scenes: remedial actions, inspections, TRIM, flexibility on NPL guidelines, all of this is ext important in the day to day lives of the banks. Again the message here is: support your customers
And don't do anything irreversible because of banking regulations, IFRS9, procyclical regulations, etc. Why is this key? Because there is strong hysteresis in NPL regulations.
If a SME faces temporary problems, and the bank decides to help with forbearances, grace period, etc., BOOM, it's now a NPL. And even if things get better quickly, it's going to stay there at least 2 years, with important consequences, both for the bank and the SME
This is what we collectively need to prevent at all costs. Because the damages are not temporary. So my followers know I usually enjoy being sarcastic and (kindly) teasing or mocking regulators. But honestly this is a great package from the ECB. A shame it wasn't explained better
@michaelsteen : your job, now :-)
As pointed out by @borisg_work I forgot to remove our Brexited friends, so RWA are more likely around 14tn now (anyone has an accurate recent # i'm interested) which suggest between 500bn and 600bn - still very big!
I need to add something: JPM is just out w a note saying this is all negative for banks. Why? Bc nobody understands why the ECB did this huge gift to banks, so they must know banks are in deep trouble. Seriously🤪. Just shows how important it is to explain & this hasn't been done
