seems to have some juice. Article 4-b-1 says

The ECB and each of the NCBs shall open an inter-NCB account on their books for each of the other NCBs and for the ECB. In support of entries made on any inter-NCB account, each NCB and the ECB shall grant one another an unlimited and uncollateralised credit facility

&

To effect a cross-border payment, the sending NCB/ECB shall credit the inter-NCB account of the receiving NCB/ECB held at the sending NCB/ECB; the receiving NCB/ECB shall debit the inter-NCB account of the sending NCB/ECB held at the receiving NCB/ECB.

This is also helpful …

“Payment systems in the euro area”
http://www.bis.org/cpss/paysys/ECBComp.pdf

The TARGET setup can be described as a decentralised system in which payment messages are exchanged on a bilateral basis without a central counterparty. No information on payment orders exchanged is sent to the ECB during the business day.

TARGET = The Trans-European Automated Real-time Gross settlement Express Transfer

I remember a paper by Scott where he talks of CHIPS and Fedwire … seems analogous. Money can be understood by studying payment systems – as Randy Wray says, money is an IOU.

http://bilbo.economicoutlook.net/blog/?p=8686

Apparently he just needs to be pestered sufficiently..

http://www.federalreserve.gov/releases/z1/Current/z1.pdf

As usual, calculated risk is out of the blocks with a fast synopsis:

http://www.calculatedriskblog.com/2010/03/flow-of-funds-report-mortgage-debt.html

I have updated the BS url : http://mathurl.com/yzct8fx a lot of that may be not permitted, though they could be called repurchase agreements, such as an NCB doing a reverse repo with a bank/Non-bank in a different country

Taking the NCBs trading to the extreme – I suspect there are some operations which target the NCBs lending each other and other ones where NCBs control their country interbank rates, though that could be a lot of blabbering.

your question suggests you might be interested in the contributions from JKH there, including the one I linked to early on, but also JKH’s original contributions as the discussion continued.

One thing I did notice the last time I looked at the ECB balance sheet. It was somewhat out of date, but most of the balance sheet bulk was taken up by the Fed FX swaps that hit pretty high levels last year. I’m not sure there’s all that much operational there beyond that. Plus the balance sheet classifications are completely opaque and useless – Euro zone this and non-Euro zone that, etc.

I think the operational relationship between the NCB’s and the ECB is the most difficult to figure out. To your question, I don’t know the degree to which NCB’s transact directly with each other.

Simple question. Can NCBs issue CDs to each other ? Do they trade with one another ? Are they allowed ?

A “Balance of Payments” in one direction will scare NCBs because they may find themselves with lesser and lesser balances at the ECB. In that case they wouldn’t want to depend on the banks too much to reverse the direction of funds.

Another complicated question is if NCBs can trade with other banks. Sure can be analyzed – I just want everything to be firm in my head, which is not the case right now.

I think as far as OMOs are concerned, they do something more that just what the Fed does

http://www.ecb.int/pub/pdf/other/gendoc2008en.pdf Page 9 has a few things, but horribly written as you said.

Thinking of “reserves” as settlement balances, then it would seem that national banking systems must maintain settlement balance arrangements with their respective central banks. Because of multiple national central banks, it’s logical that NCB’s would also maintain settlement balance arrangements with the ECB. (WM noted this somewhere above). So in effect, there is a two-stage reserve/settlement system.

The ECB/NCB reserve/settlement interface would allow cross-border clearing between different national banking systems, as in your Spanish/Greek example.

That cross-border clearing would transfer deposits, bank reserves with NCB’s, and NCB reserves with the ECB all simultaneously.

Question is what happens from there. I could see each NCB doing OMO with their own government debt to reverse the effect on their own reserve liability positions. But that does nothing to change their long and short positions at the ECB.

So I’m guessing those long and short positions get converted into “structural” asset and liability claims that sit on balance sheets until they get reversed by “exogenous” cross border flows in the other direction. The balance sheets of both the ECB and the NCBs seem to show some sort of massive slush pool of intra-system claims in both directions which would support this idea.

That’s all just for clearing and settlement purposes, cross-border.

Interest rate control is another issue. I gather there’s a corridor system. I think operational OMO is delegated somewhat from the ECB to the NCB’s for implementation according to system wide liquidity conditions as well as local liquidity conditions.

But the ECB background papers are really lousy at explaining this.

Somebody reading this blog from Europe must be able to add some concrete knowledge here.