MADRID -- New European Central Bank lending practices could result in higher financing costs for a Spanish banking system already reeling from a housing-market downturn, but won't likely cause a liquidity squeeze.

Concerned by the continued dependence of euro-zone banks on ECB liquidity more than a year after the global financial crisis broke out, the ECB Thursday tightened its rules on the collateral it accepts in exchange for funds.

Spanish banks, in particular, have raised concern over their heavy use of funds from the ECB in recent months. After several years of booming credit growth, they have found it increasingly difficult to get financing elsewhere after a decadelong housing boom turned to bust late last year.

In July, Spanish banks borrowed €49.38 billion ($71.63 billion) from the ECB, nearly three times the figure from the same period a year earlier.

But an official at the Bank of Spain, the country's banking regulator, said Spain's use of ECB funds remains proportional to the country's weight in the euro-zone economy. He added that, of the ECB rule changes that are scheduled to go into effect Feb. 1, only the increased charges for accepting asset-backed securities will affect local banks.

The ECB said it will impose a uniform charge, or haircut, of 12% for accepting any type of asset-backed security, or ABS, from a bank as collateral against cash they borrow. Currently, haircuts for ABS range from 2% to 18% depending on their maturity and coupon type.

It will also apply a further 5% haircut on ABS deals for which there is no market price but instead has a theoretical price calculated by a valuation model.

Spanish banks have on hand around €180 billion in assets they can use at the ECB liquidity auctions, €100 billion of which are ABS. According to various estimates, the new rules will reduce by around €15 billion, or 8%, the funds the banks can borrow against their collateral.

"There are no banks that will have insufficient [collateral] as a result of the rule changes," the Bank of Spain official said.

Spanish banking executives said the ECB rule changes won't cause major disruptions in their funding strategies or their ability to lend money to customers. They said they saw the changes as an effort by the central bank to encourage euro-zone banks to redouble their efforts to smooth the ********ing of interbank and wholesale financing markets.

"The situation over the last year or so has been complicated, and it's hard to reactivate these markets, but central banks have to try to do so," said Tomas Varela, chief financial officer of midsize Spanish bank Banco de Sabadell SA.

But as demand for funds from markets that are still tense and volatile increases, funding costs for banks could rise, some analysts warn. The three-month spread between euro interbank lending rates and swaps -- which reflects concerns about the financial standing of banks -- rose to 0.639 percentage point Thursday from 0.631 point Wednesday.

Banking shares fell across Europe Thursday. Shares in Sabadell, for example, retreated 3.2%, while Bankinter SA, another midsize Spanish bank, fell 5.3%. The overall Spanish market declined 3.1%.

"The average refinancing costs for banks in the euro zone will probably increase, even if the ECB was careful to leave some time to the banking sector to adapt these changes," said Gilles Moec, an economist at Bank of America.

Iniciado por Peter-78

Spain Economy Watch
Hay un articulo nuevo en el "Spain Economy Watch blog". Siempre es interesante pero hoy tiene una supresa:


[...]
Ireland in the Forefront

What may well surprise many readers of this blog [...] is that it seems to be Ireland and not Spain which has been at the heart of most of the abuse (certainly you wouldn't have known this from the number of articles in the popular press which have been busy pointing the finger at the Spanish banks though). Last week the ECB lenta total of 467 billion euros to European banks,... [...]

But when we look at how this money lent by the ECB has been allocated, then it may raise more than a few eyebrows to learn that lending to the much castigated Spanish banks has been "only" running at around 49 billion euros (as of July), while lending to Irish banks was running at 44.1 billion euros according to data from the Irish central bank in Dublin. I say only, since everyone is aware that Spain's banks have a massive problem, so if a facility exists it is only natural that they use it (and I am not sure why this is called "abuse" since Spain's savings banks in particular are under very great pressure, see below, so what are they supposed to do? [...]

To put what ahs been happening in perspective, since Ireland is about one tenth the size of Spain, it is as if the Irish banks had been accessing some 440 billion euros in funds. And things get worse, since about half of the funding from the ECB has been going of to the Dublin-based units of lenders from outside Ireland, according to analyst Eamonn Hughes at Goodbody Stockbrokers.

HBOS, which has a unit in Ireland, is just one of the British banks that borrowed from the ECB, and hence the sudden drop in its share price yesterday. Earlier year it emerged Macquarie Bank had set up a deal backed by Australian car loans specifically for use at the ECB. But the whistle really was blown in mid August when the UK's largest building society, Nationwide, got a lot of media coverage for saying it was planning to expand into Ireland to take advantage of "funding opportunities".

So the first thing to have clear is that the real abuse of the ECB funding has not been coming from Spain, and Spain use of these funds has been more or less policed by Bank of Spain Governor Fernandez Ordoñez, with roughly half the funding going to Spain's savings banks sector (who really do need liquidity, see below), but it is Spain's banking sector who will take a big part of the hit, since while in other countries the funding may have been considered to be "froth on the daydream", Spain's banking system really is struggling.

Iniciado por Moçambicano

HBOS, which has a unit in Ireland, is just one of the British banks that borrowed from the ECB, and hence the sudden drop in its share price yesterday. Earlier year it emerged Macquarie Bank had set up a deal backed by Australian car loans specifically for use at the ECB. But the whistle really was blown in mid August when the UK's largest building society, Nationwide, got a lot of media coverage for saying it was planning to expand into Ireland to take advantage of "funding opportunities".

¿¿¿Estaré entendiendo mal lo que dice el artículo, o es verdad que los bancos ingleses están utilizando sus filiales irlandesas para buscar en el BCE el dinero que el Bank of England no les presta???