tag:blogger.com,1999:blog-970611666708740586.post3035860377002662079..comments2023-08-28T11:48:39.554-07:00Comments on Reserved Place: Right on TARGETRebelEconomisthttp://www.blogger.com/profile/13241098878248190971noreply@blogger.comBlogger38125tag:blogger.com,1999:blog-970611666708740586.post-35787377737211847012017-01-05T11:12:22.833-08:002017-01-05T11:12:22.833-08:00Hello Everybody,
My name is Mrs Sharon Sim. I live...Hello Everybody,<br />My name is Mrs Sharon Sim. I live in Singapore and i am a happy woman today? and i told my self that any lender that rescue my family from our poor situation, i will refer any person that is looking for loan to him, he gave me happiness to me and my family, i was in need of a loan of S$250,000.00 to start my life all over as i am a single mother with 3 kids I met this honest and GOD fearing man loan lender that help me with a loan of S$250,000.00 SG. Dollar, he is a GOD fearing man, if you are in need of loan and you will pay back the loan please contact him tell him that is Mrs Sharon, that refer you to him. contact Dr Purva Pius,via email:(urgentloan22@gmail.com) Thank you.<br /><br />BORROWERS APPLICATION DETAILS<br /><br /><br />1. Name Of Applicant in Full:……..<br />2. Telephone Numbers:……….<br />3. Address and Location:…….<br />4. Amount in request………..<br />5. Repayment Period:………..<br />6. Purpose Of Loan………….<br />7. country…………………<br />8. phone…………………..<br />9. occupation………………<br />10.age/sex…………………<br />11.Monthly Income…………..<br />12.Email……………..<br /><br />Regards.<br />Managements<br />Email Kindly Contact: urgentloan22@gmail.comDr Purva Piushttps://www.blogger.com/profile/05883980841903455890noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-23751535611982474542012-11-30T22:26:06.403-08:002012-11-30T22:26:06.403-08:00I replied to Cangrande on 1 December 2012 on his b...I replied to Cangrande on 1 December 2012 on his blog here: http://beltwild.blogspot.co.uk/2012/10/weitere-uberlegungen-zur-target2.htmlRebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-86722998895698145882012-10-22T12:11:44.225-07:002012-10-22T12:11:44.225-07:00Thanks to a reader-commentary by a certain Bernd K...Thanks to a reader-commentary by a certain Bernd Klehn (mentioned in another context in my complete blogposting) for this blogpost (http://www.diewunderbareweltderwirtschaft.de/2011/02/bundesbank-erklart-die-338-milliarden.html) I found the article "Liquidate or liquefy?" (http://www.ceps.eu/book/liquidate-or-liquefy) by the well-know economist Daniel Gros. Without mentioning the Target2-mechanism, he gives a good description and demonstrates a keen problem-perception of the mechanisms behind Target2. Highly recommended reading!Cangrandehttps://www.blogger.com/profile/15886612960494544505noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-68745447990265766502012-10-21T06:53:56.766-07:002012-10-21T06:53:56.766-07:00Hello Rebeleconomist,
let me start my commentary ...Hello Rebeleconomist,<br /><br />let me start my commentary with a few excuses<br />- for coming late into this debate<br />- as a German, for my English being less than perfect<br />- as a layman, for my command of technical terminology leaving room for improvement and, possibly,<br />- for adressing subjects, that may already have been clarified in later postings of yours or elsewhere in this very widely ramified debate.<br /><br />I did haphazardly read a few blogpostings on the subject while the discussion was raging in 2011, but now I bought Prof. Sinns lates book "Die Target-Falle" (The Target-Trap) with the intention of writing a critical review. This necessity occured to me when reading a extract "So wurden die Euro-Retter erpressbar" on the FAZ-Website (Link for anyone understanding German: http://www.faz.net/aktuell/wirtschaft/europas-schuldenkrise/die-target-falle-so-wurden-die-euro-retter-erpressbar-11917895.html). Strangely enough, Sinn still seems to hold a few misconceptions, even though you would imagine that no stone has been left unturned in this international debate with its broard participation on all levels and some illustrious contributors.<br /><br />The more I dig into it, the more thrilling the whole subject is becoming for me; much more so than any whodunit.<br />But since the subject seems to be complicated even for people that have studied economics, I decided I'd better try to get an overview of the internet-debate, before even starting with Sinn's book.<br />And that's how I came across (via Olaf Storbeck) your present entry.<br />Many reader-commentators have rightfully applauded it, but none of them has give a reason why "that's quite a post".<br />What distinguishes it from pretty much all other approaches is your uncompromising step-by-step analysis of the flows of money etc. Your text doesn't suffer from any gaps, which not only sometimes confuse the readers of other contributions, but also the authors. Not infrequently they seem to jump from abstraction to abstraction, and do get entangled themselves in this maze.<br /><br />So while I already did have a pretty realistic understanding of the whole Target2-question, reading your blogpost has reassured me and put my reasoning on a more secure basis: thanks for that!<br />One insight I take from you, which may not be crucial but certainly is interesting, is the fact that the retreat of, say, German money from, say, Ireland can be described in TWO ways:<br />- Obviously as an intended repatriation of capital 'back home'.<br />- Less obviously, as a crowding-out of German banks from refinancing the Irish by the ECB as an unfair competitor (operated with subsidised interest rates, as you explain very clearly).<br /><br />Allow me to make a few remarks, for discussion or not, on a rather broad range of T2-aspects.<br /><br />Sorry, my posting was too long (some 15.000 instead of 4.100 signs). And since I found it too troublesome to split it up, I've posted the whole commentary in my own blog: http://beltwild.blogspot.de/2012/10/weitere-uberlegungen-zur-target2.htmlCangrandehttps://www.blogger.com/profile/15886612960494544505noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-50885426037282131062012-02-18T13:25:17.927-08:002012-02-18T13:25:17.927-08:00Yes, I believe I can Steve B.
Central banks from ...Yes, I believe I can Steve B.<br /><br />Central banks from several non-eurozone EU countries that presumably expect to enter the euro at some point, presently comprising Poland, Denmark, Latvia, Lithuania, Bulgaria and Romania, are connected to TARGET2 (see here: http://www.ecb.int/paym/t2/about/countries/html/index.en.html ). As they are not yet members of the eurozone, these central banks are not permitted to run negative TARGET2 balances with the eurozone central banks and hence, when these balances are reassigned to the ECB at the end of each day, with the ECB itself (see note 2 on page 35 of the October 2011 ECB Monthly Bulletin: http://www.ecb.int/pub/pdf/mobu/mb201110en.pdf ). Presumably, these non-eurozone TARGET2 participants must transfer funds to cover any potential deficits. They may, however, run a positive TARGET2 balance with the ECB, which they might well choose to do as a safety margin to avoid overdrafts, given that such balances are practically credit-risk-free and remunerated at the ECB refinancing rate. Information on TARGET balances which include the ECB but exclude these non-eurozone countries, like the Osnabruck example you give, therefore show the ECB with an overall TARGET2 liability which is not matched by TARGET2 credit elsewhere in the set of countries included. If the non-eurozone TARGET2 participants were included, however, I think that the TARGET2 balances should add up to zero to within measurement error.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-8036334909927628702012-02-16T07:17:11.580-08:002012-02-16T07:17:11.580-08:00Can you explain why the Target balances don't ...Can you explain why the Target balances don't add up to zero in the ECB Balance Sheet? In December 2008 the ECB itself had Target claims of about 25 billions as you can see in its annual reports or if you add up the target data for all countrys (you can find the data here on eurocrisismonitor.com from the university of Osnabrück).<br />Thanks, SteveSteve B.noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-87104183529321982972012-02-09T14:18:00.253-08:002012-02-09T14:18:00.253-08:00Bullybear
While I agree that Sinn's use of th...Bullybear<br /><br />While I agree that Sinn's use of the word "stealth", implying that the eurosystem was <i>deliberately</i> hiding the bailout through TARGET2, was a little sensational, I do think that it was difficult to recognise as a bailout until Sinn brought it to public attention (earlier, as far as I know, than anyone else such as John Whittaker), for which he deserves great credit.<br /><br />Whether a lowering of collateral standards for a subset of reserve borrowers represents an easing of monetary policy is partly a matter of definitions and semantics. If the demand curve for reserves according to the ECB's main refinancing rate (ie with the interest rate on the y-axis and reserves demand on the x-axis) applies with a fixed type of collateral from each particular subset of borrowers, I do think that there is a one-to-one correspondence between the refinancing rate and the stock of reserves, because the total demand for reserves is just the sum of demands from all the subsets. If, however, other things equal, the ECB relaxes the collateral standard for any particular subset of borrowers, then the demand curve for that particular subset, and hence the total demand curve, would be expected to shift outwards / right. If the ECB then raised its interest rate to hold the demand for reserves constant, which could be defined as holding its monetary stance constant, the result would be more demand for reserves in the subset with relaxed collateral standards and less demand elsewhere. Of course, it could be argued that, in the case of Greece, unchanged monetary policy requires the ECB to continue taking Greek government bonds as collateral on unchanged terms despite the fact that Greece has become less creditworthy, but in that case, the ECB refinancing rate is no longer a uniform practically credit-risk-free interest rate for every subset of borrowers. Perhaps the best way of describing the effect of the ECB's policy of continuing to accept Greek government bonds as loan collateral is that it gives Greek banks a <i>comparative</i> advantage in accessing ECB refinancing operations.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-56355676291338592642012-02-09T13:05:53.323-08:002012-02-09T13:05:53.323-08:00Anonymous on 1 February 2012 at 01:27 / Chr. Kurze...Anonymous on 1 February 2012 at 01:27 / Chr. Kurzer<br /><br />The TARGET2 payments system works regardless of whether or not German banks can find an outlet for the reserves that are created by payment inflows, although the deposit rate that German banks offer is likely to depend on how much they can earn on the funds, perhaps even to the point that German banks charge for taking deposits, which of course could be expected to deter some of the inflows. When German banks have paid down their entire stock of refinancing loans, which according to Sinn's most recent and best explanation of his case (which is well worth reading by the way: http://www.cesifo-group.de/portal/page/portal/ifoContent/N/rts/rts-mitarbeiter/IFOMITARBSINNCV/CVSinnPDF/CVSinnPDFAndere/NBER_wp17626_sinn_wollm.pdf ) had already happened by August 2011 (Figure 10 of the paper), each bank has two realistic choices of what to do with additions to their reserves – the unrealistic choice is to simply hold excess reserves (ie in excess of the bank's minimum required holding), which are unremunerated. The first realistic choice is to place the excess reserves in a deposit offered by the Bundesbank on behalf of the ECB, either in a fixed term deposit if these are available (eg http://www.ecb.int/mopo/implement/omo/html/20120021_all.en.html ), or in the standing overnight deposit facility, which at the time of writing, earns 25bps, which is 75bps less than the main refinancing rate. A bank's second realistic choice is to try to lend its excess reserves, by offering loans at a lower rate reflecting its reduced marginal (opportunity) cost of funding. Although this cannot reduce the banking system's stock of reserves, it may succeed in expanding the German banking system's collective balance sheet to the point that the reserves become required reserves. This second choice, however, also requires the existence of extra loan demand at lower interest rates and extra bank capital, both of which are hard to find at the moment. In other words, the cost of reserves does not represent much of a restraint on bank balance sheet expansion at present.<br /><br />The recent lowering of the interest rate on the ECB's standing deposit facility was in line with the cuts in the main refinancing and marginal lending rates, and together are supposed to stimulate bank lending, although given that the cost of reserves is hardly restraining lending, the cuts may have been intended mainly as a gesture. Naturally, if economic confidence improves, loan demand and bank balance sheet expansion can be expected to pick up at present interest rates, although the ECB would probably raise interest rates before this became a substantial inflationary threat.<br /><br />I thought Tornell and Westermann's VoxEU article was poor. In EMU, Bundesbank monetary policy operations are executed on behalf of the ECB, using ECB monetary policy instruments, like refinancing loans, standing facilities and fixed term deposits. The amount of the deposit facilities is essentially unlimited, so, while there may be a sharp drop in the returns available to the German banks when they have paid off all their refinancing loans, there is no quantitative limit of the kind suggested by Tornell and Westermann, and no need for the Bundesbank to start selling its own assets like bunds, let alone gold. I presume that Tornell and Westermann were raising these possibilities to stir up interest in their article.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-58475857408892563432012-02-09T12:43:54.492-08:002012-02-09T12:43:54.492-08:00Anonymous on 28 January 2012 at 15:27
Actually I ...Anonymous on 28 January 2012 at 15:27<br /><br />Actually I don't agree with Ackermann.<br /><br />He is assuming that a Greek government default would include Greece's TARGET2 liability, which is not necessarily correct. In EMU, the national central banks are supposed to be independent of government, so assuming that a defaulting government does not override this independence (which the government certainly would not do if they wanted to remain a member of the eurozone), whether the national central bank defaults on its liabilities depends on how much its assets are depreciated by the government's default, and whether it has sufficient capital to absorb these losses. While it is true that many of the loans made by the Greek central bank are collateralised by Greek government bonds, the losses on these bonds are borne in the first instance by the banks that own them. Some of these banks may be sufficiently well-capitalised to survive their losses and repay the central bank. And even where the losses on their holdings of Greek government bonds do bankrupt the banks and cause the central bank to take possession of the bonds pledged as loan collateral, provided that these bonds have some residual value, and provided that the central bank frequently and realistically marked its loan collateral to market and called for more as required to keep its loans covered, the central bank's losses may be small enough to be absorbed by its own capital. As I explained in my December 9 Addendum to the post, in theory TARGET2 balances are supposed to be credit risk free, because they always correspond to collateralised loans made by national central banks to their banks.<br /><br />Your comment raises an interesting question. Although the national central banks execute ECB money market operations as agents of the ECB, and although monetary income is shared out between the national central banks according to the capital key, it does seem (although I have not read any official confirmation of this) that the resulting asset and liability positions appear on the national central bank balance sheets, which are the legal owners of those positions. It occurs to me therefore, that one response to concerns about TARGET2 balances could be to put all positions arising from ECB monetary policy operations onto the balance sheet, and into clear legal ownership, of the ECB, with the national central banks using these assets and liabilities under a power-of-attorney arrangement. Then, there could be no question of national central banks defaulting on their TARGET2 liability while retaining their secured loan assets. In fact, banks' reserve positions would be debited or credited to reflect payments regardless of whether or not these crossed borders, and TARGET2 balances would no longer exist.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-51001963750283540572012-02-09T12:25:37.319-08:002012-02-09T12:25:37.319-08:00Anonymous on 8 January 2012 at 15:59:
I am sorry ...Anonymous on 8 January 2012 at 15:59:<br /><br />I am sorry that your comment disappeared into spam, but I have now rescued it.<br /><br />Actually, having translated your German as best I can using internet facilities (Bilanzverlängerung=balance sheet expansion; aufblähung der geldmenge=inflating money supply), I don't entirely agree. Cross-border payments via TARGET2 per se do not involve money creation or private sector balance sheet expansion. If the paying bank has excess reserves, its balance sheet will actually contract as it reduces the deposit of the customer making the cross border payment and some of its reserves are extinguished when its national central bank takes on the TARGET2 liability to the payee country central bank. The paying country's national central bank balance sheet will remain the same size as the increase in its TARGET2 liability replaces some reserves. The payee bank balance sheet will increase by an equal and opposite amount as its national central bank credits its reserve account and it in turn credits the payee customer's current account. And its national bank balance sheet will also expand as its reserves liabilities increase and its TARGET2 claims increase. Essentially, cross-border euro payments redistribute the existing stock of base money, with an equal and opposite contraction in the private sector balance sheet of the paying country and an expansion in the payee country.<br /><br />If the paying bank has sufficient collateral, it can, by borrowing from its national central bank in the ECB refinancing operations, readily replenish its reserves, in which case its balance sheet does not contract, while if the payee bank has an existing stock of ECB refinancing loans, it can run these down to absorb excess reserves, in which case its balance sheet does not expand.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-57829080787281969842012-02-01T11:58:28.798-08:002012-02-01T11:58:28.798-08:00RebelEconomist,
When I read the introduction to y...RebelEconomist,<br /><br />When I read the introduction to your post about your agreement with Hans-Werner Sinn’s conclusion, I initially assumed that I would disagree with the rest of your entry, as I have been less than impressed by Sinn’s arguments (and even less those of e.g. Tornell and Westermann). However, I strangely find myself in agreement with nearly everything you’ve written!<br /><br />One of my major quibbles with Sinn is the use of the term “stealth bailout” and his linking it to the Target2-balances. If all Eurosystem operations were conducted centrally with banks holding accounts at the ECB instead of with the NCBs, there would obviously be no Target2-balances, but the loans to banks in periphery countries would be the same. I was therefore happy to see that you focused your argument much more on the ECB’s collateral policies, which are, in a sense, providing a bailout to certain banks since the ECB, as you rightly note, accepts collateral at terms that no market participant would do. So I’m inclined to agree that the ECB’s action have a bailout quality to them – but I wouldn’t necessarily describe it as very stealthy... and I would certainly divorce the discussion of Target2-balances from that of the ECB’s collateral policy. If Sinn had focused on the latter, his arguments would have made a lot more convincing.<br /><br />There is one of your arguments, however, which I do not quite understand, namely your contention that if a “relaxation of the ECB collateral rules marginally eases monetary policy in the payment deficit countries, monetary policy must be marginally tighter elsewhere.” My issue with that statement is that while I understand your logic, I’m just not sure your “one-to-one correspondence” applies in today’s money market. It’s not just the stock, but also the distribution of that reserves matters. You could, for instance, take a stock X from unhealthy banks and give it to healthy banks, and I'm pretty confident money market rates would drop by that transfer in spite of a constant stock.bullybearnoreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-78101059441448224392012-02-01T01:27:31.858-08:002012-02-01T01:27:31.858-08:00Thanks for your informative blog.
What I do not u...Thanks for your informative blog.<br /><br />What I do not understand: If the german banks run down their refinancing loans then the target-system would only work as long as the corporate banks are willing to use the deposit facility of the Bundesbank (Or the Bundesbank would have to sell assets). <br /><br />But why do the ECB lowered the interest rate on the deposit facility and even lowered the reserve requirements. What would happen if the interbank confidence restores and the german commercial banks start lending each other instead of putting the deposits in the deposit facility? <br /><br />If I understood you correctly, the arguments of Tornell/Westermann in their recent VOXeu article would be right?<br /><br />I would really appreciate an answer. Thanks, Chr. KurzerAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-32534770010530695412012-01-28T15:27:22.288-08:002012-01-28T15:27:22.288-08:00Looks like Josef Ackermann in Davos today shares y...Looks like Josef Ackermann in Davos today shares your view on the TARGET2 claims Buba has on the Greek Central Bank.<br /><br />http://www.bloomberg.com/video/85098804/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-67227560848269113492012-01-08T15:59:03.280-08:002012-01-08T15:59:03.280-08:00to cut it very short:
target2:=bilanzverlängerung:...to cut it very short:<br />target2:=bilanzverlängerung:=aufblähung der geldmenge...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-74953807736669522772011-12-09T15:54:39.724-08:002011-12-09T15:54:39.724-08:00Anonymous on 24 November / Trainspotter
The illus...Anonymous on 24 November / Trainspotter<br /><br />The illustration in the post will get larger if you double click on it, but if that is not clear enough, send me your email address and I will send you the jpeg file.<br /><br />Yes, "a growing Irish TARGET2 liability = the refinancing loans ECB offered and taken up by Irish banks, used to shore up reserves at the ECB" is correct. But remember that this is only true after the Irish banks have adjusted their reserves position via the ECB refinancing operations. The Irish TARGET2 liability exists before that (ie Figure 2 in the post), when it is equal to the drawdown in Irish bank reserves as the outgoing payments are made.<br /><br />Assuming that the net outward payments made by the Irish go to Germany, the German TARGET2 claim is essentially the opposite of the Irish TARGET2 liability. In the process of settling its side of the payments, the Bundesbank credits the German banks with additional reserves (again, Figure 2, before the German banks adjust their reserves position by allowing some of their ECB refinancing loans to roll off), adding to the Bundesbank's liabilities, and acquires a claim on the eurosystem, an asset for the Bundesbank, in the form of a TARGET2 claim.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-61792624610255600172011-12-09T15:41:08.946-08:002011-12-09T15:41:08.946-08:00Thanks for your appreciation and good questions, u...Thanks for your appreciation and good questions, umarmung. Sorry to be so slow to reply. I needed to re-read the information on the inter-regional settlement and banknote management arrangements in the eurozone before I could have confidence in my opinion. Please see the new addendum to the post for my thoughts.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-43526738645440101882011-11-24T11:41:20.467-08:002011-11-24T11:41:20.467-08:00I'm the above Anon commentator. I'd like t...I'm the above Anon commentator. I'd like to ask another question. Where you said:<br /><br />"Consequently, TARGET2 payments from Ireland to Germany have on the whole not been offset by payments of loan capital in the opposite direction, implying a growing Irish TARGET2 liability and a growing German TARGET2 claim."<br /><br />I assume "a growing Irish TARGET2 liability" = the refinancing loans ECB offered and taken up by Irish banks, used to shore up reserves at the ECB, correct?<br /><br />"a growing German TARGET2 claim": I don't understand what the claim is. Could you explain?<br /><br />Thank you!Trainspotternoreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-82239197233622681952011-11-24T11:34:35.578-08:002011-11-24T11:34:35.578-08:00Thanks RebelEconomist. What a great post. I am iff...Thanks RebelEconomist. What a great post. I am iffy in a couple of places, perhaps this would be resolved if I can actually see the illustration you appended. They are too grainy. Could you make available a higher resolution graphic and put a link here? Thank you.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-19277526812046492962011-11-16T20:11:49.529-08:002011-11-16T20:11:49.529-08:00This is an extremely well written and informative ...This is an extremely well written and informative article and I am glad I took the time to read it all. The diagram update is helpful too. Thank you, RebelEconomist.<br /><br />I also just read your responses on Economics Intelligence about the Target2 debate and ECB involvement. While I completely agree with you that the EI author completely missed the point (though Sinn hardly helps himself either based on the selective quoting), I do wonder about your second post in which you state that there is no reason why Greece could not remain in the EZ even post-default.<br /><br />With regards to the Eurosystem specifically, for example, what about the issue of Euro banknotes and their seniorage which are also part of the TARGET2 system? This is briefly covered in an FT Alphaville article ( http://ftalphaville.ft.com/blog/2011/11/14/745851/some-euro-banknotes-are-more-equal-than-others/ ).<br /><br />In addition, when default is viewed by the market or its citizens as a possible or likely precursor to exit of a currency area, is it not possible that ex-post legal and trade conditions could make it untenable to be considered part of that area without an unlimited risk to other states?umarmungnoreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-29868484511236358982011-10-14T12:55:44.377-07:002011-10-14T12:55:44.377-07:00RE,
The TARGET2 issue was discussed in this month...RE,<br /><br />The TARGET2 issue was discussed in this month's ECB Monthly Bulletin and elicited a rebuttal this morning from Sinn.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-77994177489179624252011-07-29T07:56:46.856-07:002011-07-29T07:56:46.856-07:00Thanks Lee Kelly; you are welcome. Given your int...Thanks Lee Kelly; you are welcome. Given your interest, you might like the first half or so of my "<a href="http://reservedplace.blogspot.com/2009/04/easing-understanding.html" rel="nofollow">Easing understanding</a>" post.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-59865823302871801942011-07-29T06:36:49.457-07:002011-07-29T06:36:49.457-07:00I just discovered this blog and wanted to express ...I just discovered this blog and wanted to express my appreciation. I am interested in monetary economics, but I am just a hobbyist and know little about the nuts and bolts of monetary and banking institutions.<br /><br />Hopefully, your blog might help close, if only by a small amount, that gaping hole in my knowledge.<br /><br />Thank you!<br /><br />(I followed a link here from your very on-point post over at Nick Rowe's blog).Lee Kellyhttp://criticalrationalism.netnoreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-24265380151188786962011-07-29T00:03:53.840-07:002011-07-29T00:03:53.840-07:00OK, Anonymous. I edited the post to make that poi...OK, Anonymous. I edited the post to make that point clear. I think that the ECB's intention though would be that the width of the corridor changes less frequently than its centre as defined by the refi rate.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-85336373858775275472011-07-27T11:52:01.238-07:002011-07-27T11:52:01.238-07:00Useful post, RE - thank you. The only point I'...Useful post, RE - thank you. The only point I'd add is that the width of the corridor is variable (you wrote that the depo/refi spread is 75bp).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-75905206724486834482011-07-25T05:31:14.013-07:002011-07-25T05:31:14.013-07:00Funnily enough lostgen, I had just read that VoxEU...Funnily enough lostgen, I had just read that VoxEU post, and was trying to make a comment there when you posted your comment here. Clemens Jobst provides a good explanation, but he also misses the point that it is the effectively nationally differing collateral standards that have generated the trend in the TARGET2 balances, not monetary union per se.<br /><br />Since my comment has still not appeared at VoxEU after three days, and since it explained the problem in a slightly different way to my post here, I include my comment here, for the record:<br /><br />" Although I like your inclusion of banknotes in the analysis, Clemens, I am afraid that you and the articles you cite are missing the reason why Sinn is basically right about the growing TARGET2 balances. The reason is that this growth has been facilitated by effectively subsidised ECB lending to the GIPS banks, which occurs because (1) unlike the market, the ECB is willing to accept GIPS government bonds as loan collateral and (2) such bonds are disproportionately held by GIPS banks.<br /><br />As you know, TARGET2 balances represent the accumulation of cross border payments settled with central bank money. If the ECB set equally rigorous market-based collateral standards for the whole eurozone, TARGET2 balances should follow something like a random walk, because even a national set of banks losing deposits should be indifferent between replenishing their reserves by secured borrowing from its central bank or from the private sector. Such a run would eventually generate a crisis when the banks affected ran out of eligible collateral, prompting some kind of solution, and even a large TARGET2 balance arising in the meantime would not matter, because it would correspond to strongly collateralised loans somewhere in the eurosystem. <br /><br />As it is, however, by accepting lower quality collateral from effectively the GIPS banks only, the ECB has given them a comparative advantage in accessing its refinancing operations. As they lose deposits, consistently the GIPS banks' best option is to replenish their reserves in the refinancing operations, while the banks in the rest of the eurozone, receiving reserves from the GIPS banks without demand from them to borrow reserves back at on acceptable terms, use these reserves to run down their refinancing loans. So, as long as the deposit run continues, the TARGET2 balances will grow remorselessly, until, as Sinn pointed out, the entire "natural" stock of refinancing is loaned to the GIPS banks (and beyond that point if the ECB offers a competitive deposit facility). And, in this case the TARGET2 balances do matter, because, assuming that the private sector is correct to consider the kind of collateral accepted by the ECB as inadequate to protect against the GIPS banks' credit risk, the GIPS TARGET2 deficit represents an inadequately compensated risk to the ECB.<br /><br />Given that TARGET2 balances can reflect subsidised lending to national sets of banks it is not unreasonable that this is either formally approved or else that measures are taken to constrain them. I am afraid that in this context comparison with the US Federal Reserve System is not really appropriate, because it is unlikely that readily identifiable sets of banks there hold such distinct types of loan collateral, and less likely that the Fed might feel politically constrained from downgrading those collateral types.<br /><br />I explain this argument in more detail here: http://reservedplace.blogspot.com/2011/07/right-on-target.html "RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.com