Financial Stability

Eurocrisis Redux

Entangling alliances or entangling leagues are nothing to the entanglements of cash owingKeynes

The recent BIS Quarterly Review article "European Bank Funding and Deleveraging" takes a stab at connecting all the dots in the Eurocrisis.  It is only 12 pages, but with 8 (triple) graphs, there is a lot here to digest.  Let's take a stab. Read more

Liquidity: Not Like Water (part 1 of many)

Discussion of the results of the ECB's LTRO2 has revolved around the question of hoarding, specifically whether banks are using the newly-created reserves to fund new lending. Answers to this question usually make reference to the amount of overnight deposits held by eurozone banks at the ECB. Read more

Relaxation on loan-to-deposit ratio?

An interesting debate is taking place among the top financial regulators and bankers in China. Read more

Crisis Averted: Understanding LTRO2

Fundamentally, the ECB is trying to keep the ongoing sovereign debt crisis from turning into a full-fledged bank credit crisis.  Three things they are worried about (see here, here, here). Read more

Fed, ECB balance sheet update

Perry and I extend our apologies for the unplanned hiatus. By way of breaking radio silence, it seems appropriate to check in on our two favorite banks. Here's the Fed's balance sheet, asset side first:

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Bank or no bank?

A money view of SDRs

In a market economy, when you need something, you go out and buy it. Liquidity is no different, in that respect at least. If it is market liquidity that you need, you go to a dealer, who stands ready to buy what you are selling. You pay for the convenience, though—the dealer is getting more for the same asset than you are. If it is funding liquidity that you need, you go to your bank, who stands ready to lend. You pay for the convenience, though—the bank is paying less for its funds than you are. Read more

Why did the ECB LTROs help?

From a money view perspective, the central issue is settlement of TARGET balances between national central banks within the Eurozone, and the key is to understand TARGET balances as a kind of interbank correspondent balance.  What I want to suggest is that the ECB's Long Term Refinance Operation can help settle the troublesome TARGET balance overhang.

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Delicate balance

The current account still matters, but other things do too, and maybe more. In light of recent focus on gross flows, here and elsewhere, I want to argue for the language of the balance of payments. This language has a quaint feel to it, and my sense is that economists view it as archaic and outmoded. I am certain, at least, that one can get through grad school with no fluency in it. Read more

A Structural Change in CNY Selloff

Following our previous posting on USDCNY decomposition, we further explore the intraday movements in recent three months, and its difference with 2008 CNY selloff period.


                    Source: Bloomberg. Data as of Dec 30, 2011.

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Nobody understands money

A correspondent sends us to a column of Paul Krugman's that asserts that "nobody understands debt". Fair enough. To my mind, this line stands out:

And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors.