tag:blogger.com,1999:blog-2826531655042170344.post806555246602826555..comments2024-03-26T11:29:52.986+00:00Comments on Economic Incentives: One domestic consequence of defaultSeamushttp://www.blogger.com/profile/15679299530222667673noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-2826531655042170344.post-10471390400789346512011-03-30T20:08:56.933+01:002011-03-30T20:08:56.933+01:00http://www.irishlifepermanent.ie/~/media/Files/I/I...http://www.irishlifepermanent.ie/~/media/Files/I/Irish-Life-And-Permanent/Attachments/pdf/2010/annualreport2010.pdf<br />p.218<br />:shock:<br /><br />H/T Lorcan Roche-Kelly...<br /><br />Goodness, haven't they been calling in their debts...yoganmahewnoreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-16848900673293005972011-03-25T10:18:53.851+00:002011-03-25T10:18:53.851+00:00Hi Tumbrel,
I don't think these self-held bon...Hi Tumbrel,<br /><br />I don't think these self-held bonds are a huge issue. <br /><br />It is like moving money from your wallet to your pocket and then writing an IOU from your pocket to your wallet. You still have the same amount of money and the IOU is largely meaningless as you if you pay it off there is again no change.<br /><br />The addition in the case of the banks is the ELG which guarantees these self-held bonds. It was for this reason that the ECB was willing to take them as collateral. At least we thought that was going to happen. <br /><br />When these bonds were issued in January it was thought the banks would use them to reduce their reliance on the Central Bank's ELA and allow them to access the cheaper money from the ECB. When the Central Bank's February balance sheet was released a week or two ago we saw the level of ELA rise from €50 billion to €70 billion (instead of falling to about €33 billion!). It is only when we get the covered bank's balance sheets next week that we will see what happened to the level of borrowings from the ECB in February.<br /><br />I don't think it has an impact on mortgages, though these may be affected by previously issued secured bonds but it will never be to change the terms. A creditor will have signed up for the collateral as is.<br /><br />In the event of a default these bonds simply evaporate from the banks' balance sheets as they appear on both the liability and asset sides. The net effect to the banks would be zero. If that were to occur and the ECB had them as collateral then the ECB would ask for replacement collateral and get it hopefully. Failing that the ECB would ask the State to honour the guarantee on these bonds. This is like getting someone else to pay back the money your pocket owes to your wallet.<br /><br />The big problem with the ECB money is that we can't pay it off quick enough. It can be largely paid off but because it is going to fund mortgages and other loans the money will be a very long time coming in. The Irish banks funding was very short term and precarious, and all this creative accouonting is the consequence of it. The chances of our bank's getting any reasonable funding on interbank markets are close to nil.Seamushttps://www.blogger.com/profile/15679299530222667673noreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-35935275877819765292011-03-24T21:16:56.615+00:002011-03-24T21:16:56.615+00:00Seamus
How can the banks issue bonds to themselve...Seamus<br /><br />How can the banks issue bonds to themselves to use as ECB collateral? Genuine question.<br /><br />Does it mean that the remains of my humble mortgage is now in the hands of Mr Bini Smaghi or some such?<br /><br />In the event of a default by the bank does the holder of the collateral (mortgage) have any right superceding that of the mortgage deed. In other words could the ECB or some third party tell me "Hey Patrick, pay up the full mortgage balance right now or pack your bags".Joseph Ryanhttps://www.blogger.com/profile/07581632829548894401noreply@blogger.com