Posted by WARREN MOSLER on September 21st, 2011
First, I don’t have confirmation this is happening the way it’s being reported.
But if it is, it opens the door for German rates to rise with credit concerns.
Without direct ECB accounts, holders of euro balances have only credit sensitive options as depositories for their funds.
These include euro banks, where deposit insurance is only via their national govt., corporate liabilities including debt and equities, and national govt. debt.
With nowhere else to go, and Germany perceived as the safest of the lot, and therefore German yields have plunged relative to other debt instruments as risk perceptions have escalated.
However, if private companies can bank directly at the ECB, Germany can quickly lose it’s TINA (there is no alternative) status, and instead be valued as an alternative to an actual ‘risk free’ depository- the ECB itself- putting Germany in the same boat with the other member nations.
Additionally, the time seems right for a new (private sector) euro member bank to emerge that’s a pure ‘depository bank’ with its assets limited to deposits at the ECB, charging its depositors a fee for this service, much like a money market fund. This, too, would have the same effect on Germany.
So while Germany is the strongest of the euro member nations, it is none the less not the issuer of the euro, and has debt ratios that are far higher than what markets would ordinarily fund for non issuers of a currency. However, as long as it continues as the ‘investment of last resort’ for holders of euro rates can remain far lower than otherwise.
Siemens Shelters Up to $8 Billion at ECB
Published: Tuesday, 20 Sep 2011 | 12:46 AM ET
Siemens withdrew more than half-a-billion euros in cash deposits from a large French bank two weeks ago and transferred it to the European Central Bank, in a sign of how companies are seeking havens amid Europe’s sovereign debt crisis.
The German industrial group withdrew the money partly because of concerns about the future financial health of the bank and partly to benefit from higher interest rates paid by the ECB, a person with direct knowledge of the matter told the Financial Times.
In total, Siemens has parked between 4 billion euros ($5.4 billion) and 6 billion euros at the ECB’s facilities, mostly through one-week deposits, this person said. Only a handful of large companies have the banking licences that allow them to deposit cash directly with the ECB.
Siemens’ move demonstrates the impact of the eurozone’s deepening sovereign debt crisis on confidence in European banks.
It was not clear from which bank Siemens withdrew its deposits. A person familiar with BNP Paribas said, however, that it was not the bank involved.
Siemens and the ECB declined to comment.
The company’s move came almost a year after Europe’s largest engineering conglomerate prepared itself for a future financial crisis by launching its own bank, an unusual move for an industrial group outside the car sector, where companies run big car financing and leasing businesses.
In an interview last December, Roland Châlons-Browne, chief executive of Siemens’ financial services unit, said its banking business would enable the group to tap the central bank for liquidity and deposit cash at the ECB.
“In the case of another financial crisis, we will be able to broaden our flexibility and take out risk with our own bank,” Mr Châlons-Browne said at the time.
Siemens does not only use the ECB as a haven; it also gets paid a slightly higher interest rate than it would get from a commercial bank.
The ECB paid an average interest rate last week of 1.01 percent for its regular offers of one-week deposits, under which it withdraws from the financial system an amount of liquidity equivalent to the amount it has spent on eurozone government bonds.
That compares with an average overnight interest rate paid by eurozone banks of 0.95 percent.