{"id":24521,"date":"2017-07-25T09:43:57","date_gmt":"2017-07-25T14:43:57","guid":{"rendered":"http:\/\/olduvai.ca\/?p=24521"},"modified":"2017-07-25T09:43:57","modified_gmt":"2017-07-25T14:43:57","slug":"the-ecb-morphs-into-the-mother-of-all-bad-banks","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=24521","title":{"rendered":"The ECB Morphs into the Mother of All \u201cBad Banks\u201d"},"content":{"rendered":"
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The ECB Morphs into the Mother of All \u201cBad Banks\u201d<\/span><\/a><\/h3>\n<\/header>\n
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More than just a few \u201cfallen angels.\u201d<\/strong>.<\/h3>\n

As part of its QE operations, the ECB continues to pour billions of freshly created euros each month into corporate bonds \u2013 and sometimes when it buys bonds via \u201cprivate placements\u201d directly into some of Europe\u2019s biggest corporations and the European subsidiaries of non-European transnationals.\u00a0Its total corporate bond purchases recently passed the \u20ac100 billion threshold. And it\u2019s growing at a rate of roughly \u20ac7 billion a month. And it\u2019s in the process of becoming the biggest \u201cbad bank.\u201d<\/p>\n

When the ECB first embarked on its corporate bond-buying scheme in March 2016, it stated that it would buy only investment-grade rated debt. But shortly after that, concerns were raised about what might happen if a name it owned was downgraded to below investment grade. A few months later a representative of the bank put such fears to rest by announcing that it \u201cis not required to sell its holdings in the event of a downgrade\u201d to junk, raising the prospect of it holding so-called \u201cfallen angels.\u201d<\/p>\n

Now, sixteen months into the program, it turns out that the ECB has bought into 981 different corporate bond issuances, of which 34 are currently rated BB+, so non-investment grade, or junk. And 208 of the issuances are non-rated (NR). So in total, a quarter of the bond issuances it purchased are either junk or not rated (red bars):<\/p>\n

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The ECB initially said it would only buy bonds that are \u201crated\u201d \u2014 and rated investment grade. Thus having a quarter of the bonds on its books either junk or not rated represents a major violation of that promise.<\/p>\n

The ECB is clearly loading up on risk and possibly bad credit that Draghi\u2019s successor is going to have to eat at some point further down the road.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The ECB Morphs into the Mother of All \u201cBad Banks\u201d More than just a few \u201cfallen angels.\u201d. As part of its QE operations, the ECB continues to pour billions of freshly created euros each month into corporate bonds \u2013 and sometimes when it buys bonds via \u201cprivate placements\u201d directly into some of Europe\u2019s biggest corporations […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[4640,63,5660,233,15559,4255],"class_list":["post-24521","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bad-banks","tag-banks","tag-don-quijones","tag-ecb","tag-european-central-banks","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/24521","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=24521"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/24521\/revisions"}],"predecessor-version":[{"id":24522,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/24521\/revisions\/24522"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=24521"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=24521"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=24521"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}