ECB Weidmann: Not Up To Mon Policy To Keep Ailing Banks Alive <-- source
FRANKFURT (MNI) – It is not the job of monetary authorities to keep
ailing banks on artificial life support, European Central Bank Governing
Council member Jens Weidmann said in an opinion piece to be published in
Tuesday’s Frankfurter Allgemeine Zeitung.
The comments highlight Weidmann’s concern about the ECB’s generous
liquidity supply, provided against what he considers insufficient
collateral. The editorial is Weidmann’s first public statement on the
issue since a leaked letter from him to ECB President Mario Draghi
caused a major stir.
In his letter to Draghi, Weidmann urged that the loosening of
collateral rules in ECB refinancing operations be reversed, and he
proposed to study whether the ECB could limit Target 2 risks by making
countries pledge assets as collateral to the ECB.
But in his editorial, portions of which were pre-released by the
newspaper, Weidmann said the Target 2 imbalances do not pose an
independent risk, “because I consider a break-up of the currency union
Since the start of the crisis, Bundesbank claims from the
Eurozone’s cross-border payment system, Target 2, have risen to nearly
E550 billion, making it the largest item on its balance sheet. The
Bundesbank would only face a real risk of losing the money if the
Eurozone were to break-up.
Nevertheless, it is not the job of monetary policy to keep weak
banks artificially alive, Weidmann said. “Decisions over the
redistribution of larger solvency risks can only be taken by elected
governments and parliaments,” he added.
Monetary policy support measures must therefore be limited and
temporary and they must not be an excuse to postpone necessary reforms,
Bundesbank Vice-President Sabine Lautenschlaeger warned Monday that
the ECB’s policies may indeed be doing just that. “There are some banks
that would have trouble refinancing even in calm times because there are
doubts over the viability of their business models,” she said.
Rather than keeping such banks alive via monetary policy and
sharing the risks among all Eurozone members via the Eurosystem, it
should be the job of national fiscal authorities to recapitalize or
close down such institutions, the Bundesbank has argued previously.
The Eurotower appears to oppose any form of collateralization of
imbalances that have built up within the Eurozone’s cross-border payment
system. “Anything happening in Target 2 is only a symptom of or
reflection of what is happening in the European economy. We have to
address the roots, not the symptoms,” Executive Board member Benoit
Coeure said in a recent interview.
Weidmann also did not appear to be any more successful in pushing
for the reversal of loose collateral rules. Draghi made clear on
Thursday that no policy reversal is on the agenda in the near term,
noting that the Governing Council had not discussed the option.
The Bundesbank is due to present its annual results on Tuesday and
is expected to report a sharp drop in the profits it will release to the
German government, to E700 million in 2011 from E2.2 billion in the
previous year. The decline is due largely to an increase in provisions
against risks on its balance sheet.
–Frankfurt newsroom +49 69 72 01 42; e-mail: email@example.com