Monday, April 21, 2008

Details BOE £50bn Special Liquidity Scheme / "Market Maker Of Last Resort" / Bailout

Another attempt to keep the credit flowing again. Here is the BOE "Bailout" Release . For more insights see Bank of England Swaps Bonds to Revive Bank Lending / Bloomberg & Helpful but…the SLS verdict FT Alphaville. More updates at the end of the post.

Ein neuerlicher Versuch das Unvermeindliche zu vehindern. Hier der offizielle Text BOE "Bailout" Release . Mehr von Bloomberg Bank of England Swaps Bonds to Revive Bank Lending sowie FT Alphaville Helpful but…the SLS verdict. Weitere Updates am Ende des Postings

Funny how they are claiming that they won´t accept no US mortgages ("It will not accept securities backed by US mortgages") and in the next sentence they are willing to take the smallest haircuts on Freddie Mac,Fannie Mae and Federal Home Loans..... But overall i have to admit that the haircuts seem to give the taxpayer some cushion.... But (and this is a big but) comparing the haircut with the following chart......

Schon belustigend wie in einem Satz behauptet wird das keine US Hypotheken als Papiere zugelassen sind und im nächsten Satz die Papiere von Freddie Mac,Fannie Mae and Federal Home Loans zu den mit den geringsten Sicherheitsabschlägen gehören. ...... Immerhin sieht es so aus als wenn die Sicherheitsabschläge dem Steuerzahler einen gewissen Sicherheitspuffer zu geben scheinen......Sobald man aber die Sicherheitsabschläge mit dem nachfolgenden Chart ins Verhältnis setzt erscheinen die angeblich so großen Risikoabschläge in einem anderen Licht...........

I had expected more generous terms from the BOE. It´s somewhat scary to see that despite the poor performance from the rating agencies they still dominate all kinds of models. This makes Moody´s probably a good buy....Sarcasm off....To keep this move into perspective one has to admit that they are only playing catch up with other central banks. Here are more charts & reports from UK

Ich persönlich hatte eine bankenfreundliche Regelung von der BOE erwartet. Es hätte also schlimmer kommen können und unterm Strich bleibt festzuhalten das die BOE sich im Grundsatz nur die Politik anderer Notenbanken aneignet. Hier gibt es mehr "beindruckenden" Charts & News zur Bubblehochburg UK. Befremdlich bleibt trotz alledem das trotz der unterirdischen Leistungen der Ratingagenturen anscheinend immer noch auf deren Wertungen vertraut wird. Evtl. ist Moody´s ja doch ein Kauf.... :-)

I suggest to read the entire paper / Empfehle den kompletten Link zu lesen SPECIAL LIQUIDITY SCHEME / BOE (Full of details!)

Banks will be required to pay a fee to borrow the Treasury Bills. The fee charged will be the spread between the 3-month London Interbank interest rate (Libor) and the 3-month interest rate for borrowing against the security of government bonds, subject to a floor of 20 basis points.

The Bank of England will decide the margin between the value of the Treasury bills borrowed and the value of the assets banks are required to provide as security. For example, if a bank were to provide £100 of AAA-rated UK residential mortgage-backed securities, it would, depending on the specific characteristics of the assets, receive somewhere between £70 and £90 of Treasury Bills.

Each participant may deliver as collateral only eligible securities held on balance sheet as at 31 December 2007....

Eligible securities will be valued by the Bank using observed market prices that are independent and routinely publicly available. The Bank reserves the right to use its own calculated prices. If an independent market price is unavailable, the Bank will use its own calculated price and apply a higher haircut. The Bank’s valuation is binding.

ELIGIBLE SECURITIES ( Highlights or Lowlights...)

AAA-rated tranches of UK, US and EEA Asset-Backed Securities (ABS) backed by credit cards ....

Conventional debt issued by the US Government Sponsored Enterprises (Freddie Mac, Fannie Mae and Federal Home Loans), rated AAA.


Additional notes:
An additional 3pp will be added to haircuts to allow for currency risk when securities are nonsterling.

An additional 5pp will be applied to own-name eligible covered bonds, RMBS and credit card ABS.

An additional 5pp will be applied to securities for which no market price is observable.

Banks to Pay Steep Cost in BOE Plan WSJ - The new plan also hopes to tackle the stigma that dogged some of the central bank's other lending. Like most central banks, the Bank of England runs a facility through which commercial banks can borrow overnight funds anonymously. But the central bank had to publicize when the overnight window was tapped, which "led to the great bank hunt," Mr. King said, to learn the identity of banks seeking funds.

To avoid that hunt, the central bank won't disclose the amounts being swapped by banks through its new program until the borrowing window closes in six months.

The BoE’s £50bn ‘baby’ comes not before time, Buiter FT Alphaville - With this move, says Buiter, the Bank is now “wholeheartedly committed” to acting as market marker of last resort for systemically important securities for which the markets have become illiquid, not to say defunct, since the start of the crisis in August 2007.

The market maker of last resort “provides market liquidity in the transactions-based model of financial capitalism the same way the lender of last resort provides funding liquidity to banks in the relationships-based model of financial capitalism,” he adds.

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Anonymous eh said...

...and in the next sentence they are willing to take the smallest haircuts on Freddie Mac,Fannie Mae and Federal Home Loans.....

I guess they are counting on those implicit guarantees being made explicit, otherwise there could be a bit of embarrassment on both sides of the Atlantic.

4:16 AM  
Blogger jmf said...

Mahlzeit Eh,


4:41 AM  
Anonymous eh said...

Einlagensicherung springt bei Düsseldorfer Hyp ein-Eine weitere deutsche Bank als Opfer der Finanzkrise

6:09 AM  
Blogger jmf said...

Moin Eh,

more to come.....

Shocking that so many German banks with no natural esposure to the risky market are so poorly managed.

At least this time the taxpayer is not on the hook......

6:27 AM  

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