This is somewhat misleading. German banks are in fact the largest users of ECB liquidity facilities, for historical reasons, both in absolute terms and as a proportion of banking system assets. That’s not to diminish the scale of the Spanish bank problem – their usage of central bank facilities (especially with ABS as collateral) has rocketed over the last year.

Anonymous, I don’t think anybody (in Europe anyway) said covered bonds have it “all under control”. They are a useful alternative funding source, used successfully by many European banks since the crisis, but they’re not a panacea. And nobody wants to buy Spanish paper at prices Spanish banks are willing to pay while the ECB’s doors are open. Even in other jurisdictions like the UK, large banks are finding other funding sources, like unsecured debt and even in a few cases securitisation, more cost effective at the moment. If it comes to an absolute funding need that has to be met however, it’s very useful to have covered bonds available. And in jurisdictions whose housing markets are in better shape, the funding costs are more attractive.

The real task of the ECB is to jawbone these entities into utilizing the considerable resources at their disposal to shore up balance sheets. Among these would be their investments in publicly listed companies thought to be of importance to the regions in which they operate – effectively backed by the state with all the political complications and fair value issues that accompany that.

i don't see them doing anything drastic about this; and if they do, it will be in name only.

if trichet & crew have a volcker moment and screw over the banks (and i hope trichet does) interest rates & spreads would spike in the euro zone. but it's clear that's not what the ECB wants right now. they're trying to solve the crisis, not exacerbate it.

so we'll just get what we always get: useless jawboning, until we get a crisis.

and the banks know this, and will keep sucking the teat until it's dry. the desperate ones may increase the shenanigans now b/c they might as well enjoy it before it's gone.

https://www.roskildebank.dk/com/

The easiest place to buy a covered bond is in Europe, particularly in Germany, where the bonds are called Pfandbriefe. Similar bonds can be traced to the 1700s in Germany.

Problem for the Eurozone will be that if there is a Northern Rock or Bear Stearns situation that affects mostly one country, say Spain, the ECB bailout will have come from the stodgy old burghers. They are going to be very unhappy – in fact it will be interesting to see if these and a few other contraditions inherent in a multinational currency and central bank signls the end of the Euro.

-Peruser