22-03-2023, 05:51 PM
Published: March 17, 2023 3.58pm GMT
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The reason the ECB has not done what was expected is because it believes that the banks in the euro area can cope with more rate hikes. This is because they are following the tougher capital and liquidity requirements known as Basel III, which were gradually implemented by regulators after the global financial crisis.
These include tougher funding requirements for the world’s 30 largest banks, since they are considered globally systemically important
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In the US, the stricter rules were originally applied by the Dodd-Frank Act of 2010 to all American banks with at least US$50 billion (£41 billion) in assets.
In 2018, however, amid concerns that these requirements were preventing banks from lending enough to the economy, the US government decided to deregulate. Now, only banks with at least US$250 billion in assets must follow the tighter rules, making mid-sized banks like SVB more vulnerable. Considering that global banking is largely interconnected because banks lend money to one another, even a mid-sized collapse can threaten the wider global banking system. It’s still unclear what the collateral damage will be over SVB.
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The euro area banking rules were not relaxed in same way, which is why the ECB believes EU banks can cope with more rate rises.
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It now appears that the US made a major mistake by loosening its banking rules in 2018. The ECB is now in a much better position to fight inflation than the US Federal Reserve. The Fed has already had to loosen monetary policy by setting up a facility (Levin's Note: It's the BTFP facility, which is kind of like QE as the amount lent out is greater than the collateral) to lend to US banks using their devalued bonds as collateral, and it probably has much less room for manoeuvre over interest rates when it meets to decide whether to raise them in the coming days.
https://theconversation.com/the-european...why-202052
......
The reason the ECB has not done what was expected is because it believes that the banks in the euro area can cope with more rate hikes. This is because they are following the tougher capital and liquidity requirements known as Basel III, which were gradually implemented by regulators after the global financial crisis.
These include tougher funding requirements for the world’s 30 largest banks, since they are considered globally systemically important
......
In the US, the stricter rules were originally applied by the Dodd-Frank Act of 2010 to all American banks with at least US$50 billion (£41 billion) in assets.
In 2018, however, amid concerns that these requirements were preventing banks from lending enough to the economy, the US government decided to deregulate. Now, only banks with at least US$250 billion in assets must follow the tighter rules, making mid-sized banks like SVB more vulnerable. Considering that global banking is largely interconnected because banks lend money to one another, even a mid-sized collapse can threaten the wider global banking system. It’s still unclear what the collateral damage will be over SVB.
......
The euro area banking rules were not relaxed in same way, which is why the ECB believes EU banks can cope with more rate rises.
......
It now appears that the US made a major mistake by loosening its banking rules in 2018. The ECB is now in a much better position to fight inflation than the US Federal Reserve. The Fed has already had to loosen monetary policy by setting up a facility (Levin's Note: It's the BTFP facility, which is kind of like QE as the amount lent out is greater than the collateral) to lend to US banks using their devalued bonds as collateral, and it probably has much less room for manoeuvre over interest rates when it meets to decide whether to raise them in the coming days.
https://theconversation.com/the-european...why-202052