Nothing good can come out of this messy situation that Trichet has created for himself and Europe. The good news is that the political tensions are rising among the Eurozone countries on the bailouts and pressure is also increasing on the ECB, both from insolvent countries (PIIGS, France, etc.) internally as well, between the German austerity thinking on one side, and the money printers (the others). We could reach a blockage, which would be the best possible outcome.
Oct. 29 (Bloomberg) -- Greek, Irish and Spanish banks are falling behind their counterparts across Europe in reducing their dependence on emergency central bank funding because they can’t find investors willing to buy their bonds.
Lenders from those three nations took 61 percent of the loans supplied by the European Central Bank at the end of September, up from 51 percent the previous month, data from their respective central banks show. [...]
Deutsche Bank AG, HSBC Holdings Plc and Societe Generale SA have sold new debt since regulators stress-tested 91 of the region’s lenders in a bid to rebuild confidence in their creditworthiness. By contrast, bonds of all lenders in Portugal, Ireland and Greece are trading as though junk rated, as are a third of banks in Spain, according to data compiled by Bank of America Corp. Their struggle to sell debt will make it harder for the ECB to curb loans to banks on Europe’s periphery.
“The ECB is going to have to support these smaller banks for many years to come,” said Simon Maughan, an analyst at MF Global Ltd. in London, who has tracked the industry for more than 15 years. “The ECB has to keep these banks alive and hope and pray that the local regulators force them to restructure and make them profitable again.”
The ECB doesn't have to do any of these. But they will nonetheless try, even if it's not the right thing to do, nor ethically, nor for the economy.
[...] Irish, Greek and Portuguese banks have been shut out of the corporate bond market since April. Italian banks fared better as its economy grew 0.5 percent in the second quarter, outpacing expansion in Spain and Portugal.
Spain’s two biggest banks, Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, have been able to tap the market because they rely less on their home market for revenue than competitors. Banco Santander, Spain’s largest lender, gets 25 percent of its profit from Spain, while BBVA gets about 46 percent of its earnings from Spain and Portugal, according to third-quarter earnings reports. The two have sold about $9.8 billion of debt since July 23 after raising nothing in May and June, according to Bloomberg data. Spain’s smaller banks only sold $2.48 billion of securities in the same period.
[...]
Investors demand an average yield of 1,010 basis points more than government securities to own bonds sold by Irish banks, according to Bank of America data. That compares with 252 basis points for Spanish lenders and 190 basis points for Italian banks.
That’s making it harder for the ECB to remove the emergency measures it put in place following Lehman’s failure. The ECB, which ceased giving 12-month loans last year and intended to phase out other liquidity measures earlier, was forced to delay its exit by Greece’s debt crisis. In May, the ECB agreed to make an additional six-month loan to banks and extended its offer of unlimited three-month tenders. Banks can borrow as much as they want for periods of between a week and three months.
“There are certain banks in the euro area that have become highly dependent on the liquidity injected by the euro system,” ECB council member Mario Draghi said in Rome on Oct. 1. “These banks should be addressed by national authorities otherwise we would have so-called zombie banks for some time.”
What about addressing the problem at the root of it, Mr Draghi? Stop lending to insolvent institution seems to be the obvious thing to do?
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