• Home
  • About
  • Subscribe
  • LATIF
  • Conferences
  • Dashboard
  • Edit My Profile
  • Log In
  • Logout
  • Register
  • Edit this post

Room 151

  • 151 BRIEF

    What's New?

  • WMCA signs £4bn investment agreement with L&G

    May 18, 2022

  • Bill will give UK Infrastructure Bank power to lend directly to councils

    May 18, 2022

  • £400bn pension group collaborates on climate transition initiative

    May 17, 2022

  • CIPFA rejects proposal for vote on publication of fraud hub report

    May 17, 2022

  • John Turnbull elected president of the SLT

    May 12, 2022

  • Pension pool identifies biodiversity as a priority

    May 11, 2022

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews
  • Briefs

The ECB Vs the BoE

0
  • by James Bevan
  • in Blogs · James Bevan
  • — 13 Mar, 2012

It’s interesting that in recent years whilst the European Central Bank (ECB) has provided almost unstinting support for Europe’s banks, in contrast, the Bank of England (BoE) has been less than supportive of UK banks. The issue is illustrated with the ECB’s Long Term Refinancing Operations (LTROs) in December and February, providing three-year loan facilities at a cost of 1% to any bank with Euroland activities and eligible collateral. The €1bn+ handed over is higher than the national output of the Netherlands and more than four times that of Greece.

The evidence is that Mr Draghi, ECB president since November 2011, intends to support commercial banks with central bank funding, and before the LTROs, many Euroland banks, particularly banks in peripheral economies such as Spain, Portugal and Ireland with large external debts, had experienced funding difficulties. The practical response had been to sell government bonds rather than call in loans, and the resultant falls in the value of Euroland sovereign debt undermined confidence in the single currency, accentuating concerns on the viability or sustainability of the euro.

The ECB’s LTROs led to the stopping of sales of government bonds by the banks, and has allowed spreads to fall back, at least deferring the challenges until maturity of the LTRO arrangement in three year’s time.

Importantly, the ECB’s provision of funding has afforded troubled banks sufficient time to reorganize. For the duration of the ECB loan, banks will earn profits on their good assets, boosting solvency. In addition, banks that have been short of cash in the recent period of market turmoil now have the chance to sell loan portfolios to banks with strong deposit resources.

With the premise that the ECB has ensured that the banking system (and hence the supply of credit) are no longer at risk of shrinkage, commentators are moving to be more optimistic on the Euroland economy, with some predicting recovery later in the current year.

The ECB stance is in stark contrast to the policies of the BoE.

Looking back, we can recall that the global interbank market ceased to function normally in July and early August 2007, and on 9th August 2007 leading British banks approached the Bank of England for an easing of collateral requirements on so-called repurchase operations, more commonly referred to as repos. The BoE’s response was that there could be no change, and the Northern Rock crisis, involving the first run on a British bank for over a century, commenced about a month after the 9th August meeting.

The BoE also decided not to provide long term loan support. In Alistair Darling’s memoir Back from the Brink, he recounts a private meeting that he had with Fred Goodwin in Edinburgh during the 2007 Christmas period, and he states that in that meeting Goodwin argued that the banks’ key problem was a lack of liquidity, which could be countered by long-term central bank lending. Clearly Darling could not persuade the BoE to provide such a facility, and in evidence to the Treasury Committee of the House of Commons in September 2008, the BoE’s Mervyn King argued that it was not the responsibility of a central bank to provide long-term finance, with that task falling to either the government or the private sector.

James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccla

Share

You may also like...

  • Making a clean, green future a reality 15th Dec, 2021
  • Treasurers back multi-asset funds and property but pessimistic about yields 28th Jan, 2021
  • Controlling inflation: the conundrum for central banks 23rd Feb, 2022
  • Aligning financial and climate obligations within fixed income portfolios 29th Apr, 2021

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 4 hours ago

    Back to the future for the PWLB: The Public Works Loan Board is tightening its lending criteria to ensure that loans will be repaid by local government borrowers. But, asks Peter Findlay, shouldn’t they have been doing[...] dlvr.it/SQcmmm pic.twitter.com/bVv4fe0Xlv

    Room151 5 hours ago

    Great piece from Peter Findlay on the PWLB’s tightening of its lending criteria. He raises some pointed questions for the Treasury and explains why the ‘casino council’ characterisation was simplistic and inaccurate. #PWLB #localgov room151.co.uk/treasury/back-…

    Room151 6 hours ago

    The Queen's speech highlighted the need for accelerating UK infrastructure investment into levelling up projects and cutting emissions. @UKInfraBank #QueensSpeech #ClimateAction #emissions Click the link below to read 🔻🔻 room151.co.uk/brief/bill-wil… pic.twitter.com/hFmF2veVIa

    Room151 6 hours ago

    Huge funding heading to the @WestMids_CA from @landg. @andy4wm #LevellingUp #netzero #regeneration Click the link below to read 🔻🔻 room151.co.uk/brief/wmca-sig… pic.twitter.com/ajhZhia6mx

    Room151 10 hours ago

    LGPS governance, Cagney and Lacey style: What regulatory response can be expected following the publication of the Good Governance project’s Phase 3 report and the closure of the Single Code of Practice consultation? Susan Black offers[...] dlvr.it/SQbfXf pic.twitter.com/xwqHOEu2AP

    Room151 1 day ago

    More evidence of the importance of emerging markets in the journey to net-zero. @BordertoCoast @BrunelPP @northernlgps @EAPensionFund @WYPF_LGPS Click the link below to read 🔻🔻 #LGPS #NetZero #NetZeroCarbon #EmergingMarkets room151.co.uk/brief/400bn-pe… pic.twitter.com/qCm0EGxzLn

    Room151 5 days ago

    ‘Urgent consultation’ issued in response to continuing audit delays: CIPFA and the Local Authority Scotland Accounts Advisory Committee (LASAAC) have announced another “urgent consultation” to consider proposals to address the latest issue that has led… dlvr.it/SQJ0kV pic.twitter.com/s6vw0bnGXO

    Room151 6 days ago

    Bags of capacity – now to housing delivery: HRAs have been freed up and councils are starting to invest, but some remain cautious, writes Steve Partridge. He suggests that a minimum of £10bn of additional borrowing could be[...] dlvr.it/SQDvxk pic.twitter.com/yZmoWzHv6U

    Room151 6 days ago

    Bags of capacity – now to housing delivery room151.co.uk/treasury/bags-…

    Room151 1 week ago

    To Michael Gove: a modest proposal: Conrad Hall has written an open letter to the levelling up secretary suggesting an unusual (and tongue-in-cheek) proposal to help councils predict next year’s government grant. Dear Secretary of State,[...] dlvr.it/SQ9GpX pic.twitter.com/mSX1xgeL8a

    Room151 1 week ago

    Queen’s Speech: an ambitious plan hampered by omissions: Richard Harbord examines the impact of the government’s legislative proposals on councils, and concludes that local authorities expect and need more from central government. However you view the… dlvr.it/SQ8hmP pic.twitter.com/BsnziyNPIO

  • Categories

    • 151 News
    • Agent 151
    • Audit
    • Blogs
    • Business rates
    • Chris Buss
    • Cllr John Clancy
    • Council tax
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Education
    • Forum
    • Funding
    • Governance
    • Graham Liddell
    • Housing
    • Ian O'Donnell
    • Infrastructure
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • Levelling up
    • LGPS
    • Mark Finnegan
    • Net Zero
    • Private markets
    • Recent Posts
    • Regulation
    • Resources
    • Responsible investing
    • Richard Harbord
    • Risk management
    • Social care
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Transport
    • Treasury
    • Uncategorized
    • William Bourne
  • Archives

    • 2022
    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Credit market report
  • Next story Fed policy, Germany and gilts

© Copyright 2022 Room 151. Typegrid Theme by WPBandit.

0 shares