The European Central Bank is indebted to the hilt and is beginning to look like one of the banks it has done so much to save, according to author Satyajit Das.
Having subsidized the European banking industry with its 1 trillion euro ($1.29 trillion) long-term refinancing operation (LTRO), funds that were distributed at well below market prices, the central bank is leveraged to levels Bear Stearns and Lehman Brothers might have felt comfortable with in early 2007.
“If the European Financial Stability Fund was a collateralized debt obligation, the ECB increasingly resembles a highly leveraged bank. The ECB balance sheet is now around euro 3 trillion, an increase of about 30 percent just since Mario Draghi took office in November 2012,” said Das in notes sent to CNBC before an interview on “Squawk Box Europe” on Thursday.
“It is supported by it own capital (scheduled to increase to 10 billion euros) and the capital of euro zone central banks (80 billion euros). This equates to a leverage of around 38 times,” he said.Page 1 of 4 | Next Page