BIS International banking and financial market developments

[Green_Bear]

International banking and financial market developments
BIS Quarterly Review December 2008
bis.org/publ/qtrpdf/r_qt0812.pdf [adobe acrobat required]

Increased central bank intermediation may in some cases weaken banks’ incentives to resume their intermediation function. For instance, borrowing from the central bank at close to the policy rate with no counterparty risk may arguably reduce banks’ incentives to raise funds from market sources. And narrow spreads between central bank target rates and the rates paid on excess balances also discourage banks from lending to other banks.

The above quote is found on page 23, admission that the bailouts are compounding the problem.

[mr_anderson]

@Green Bear

International banking and financial market developments

BIS Quarterly Review December 2008
bis.org/publ/qtrpdf/r_qt0812.pdf [adobe acrobat required]

Increased central bank intermediation may in some cases weaken banks’ incentives to resume their intermediation function. For instance, borrowing from the central bank at close to the policy rate with no counterparty risk may arguably reduce banks’ incentives to raise funds from market sources. And narrow spreads between central bank target rates and the rates paid on excess balances also discourage banks from lending to other banks.

The above quote is found on page 23, admission that the bailouts are compounding the problem.

Its similar to ‘crowding out’ or the ‘Ricardo-Barro’ effect.

A situation in which the government is borrowing heavily while businesses and individuals also want to borrow.
The former can always pay the market interest rate, but the latter cannot, and is crowded out.
investorwords.com/1226/crowding_out.html

Ireland in the 80s was a prime example.

… now wheres my (economics) anorak

[yoganmahew]

I see this as two credit problems:

• on the supply side, the bailouts are depressing credit prices by charging below market costs (not accounting for risk) and reducing demand
• on the demand side, the crowding out effect of ultra-safe government debt on high-rated securities.

[bodyofevidence]

this doesnt refer to the ailouts but to the continual lending / offering of positive interest rates by CB’s to commercial banks. both do crowd the market out.

[yoganmahew]

@bodyofevidence

this doesnt refer to the ailouts but to the continual lending / offering of positive interest rates by CB’s to commercial banks. both do crowd the market out.

And you don’t see this as a bailout?

[bodyofevidence]

@yoganmahew

@bodyofevidence

this doesnt refer to the ailouts but to the continual lending / offering of positive interest rates by CB’s to commercial banks. both do crowd the market out.

And you don’t see this as a bailout?

A second order propping up. I think we are all on the same page here : bailout=flingin in money to the capital base , propping=flinging in subsidise money via the markets…