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Spanish and Italian Banks, Once More Buying Bonds, Seen as Vulnerable
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During the November 2011 to February 2012 period Spanish banks increased holdings of government bonds by 68 billion euros, and Italian banks by 54 billion euros under the ECB's Long Term Financing Operation. That program helped to lower bond yields of the two countries for the 1st quarter of 2012. With Spain's economy facing more austerity measures at a time of 23% unemployment, bond yields have moved back up for Spain in April 2012. The increased holdings of government bonds by Spanish banks increases risks at a time when banks in Spain have not increased lending in the economy and hold a large number of bad mortgages in the country's housing bust.
Risks associated with Spanish and Italian banks increased holdings of government debt in 2012
07/13/2011
Spanish and Italian banks bought a large portion of the goverment bonds of their countries under the Long Term Financing Operation launched by ECB chairman Mario Draghi in Dec. 2011. This calmed the financial markets by lowering the bond yields for Spain and Italy, but raises new risks as analysts focus on the risks of the deficit and declining economy in Spain.
Grouped Articles
Spanish Banks More Vulnerable Than Italy's
Wall Street Journal 07/13/2011
Return of Long-Term Bond Buyers Seen as Crucial to Europe
New York Times 06/29/2012
Europe Bonds May Offer More Value
Wall Street Journal 08/23/2013
As Bond Markets Twist, Investors Shout
Wall Street Journal 06/10/2014
Wall Street Journal 06/10/2014
Spanish and Italian Banks, Once More Buying Bonds, Seen as Vulnerable
New York Times 04/08/2012
The ECB's Long Term Financing Operation Dec. 2011- March 2012
11/10/2011
The ECB's newly created Long Term Financing Operation enables European banks to meet their financing needs by borrowing from the European Central Bank at low rates of 1% for three years. Mid size banks in Spain buy government bonds of Spain and use the bonds as collateral at the ECB to access this lowcost funding. This has helped bring down rates at a recent auction of Spain's bonds from 5.1% to 1.7%. Italian banks also participated in the same way. 523 European banks borrowed 489 billion euros on Dec. 21, 2011, under this newly created financing operation of the ECB. This provides European banks financing as they are shutoff from normal financing by selling unsecured bonds to private and institutional lenders. This helps banks in the eurozone meet financial needs in 2012 without reducing lending to businesses and consumers.
Grouped Articles
German Court to Weigh Bond Buying by E.C.B.
New York Times 06/10/2013
E.C.B. Plots Strategy for Staving Off Deflation
New York Times 05/26/2014
Euro-Zone Banks Tap Big ECB Loans
Wall Street Journal 12/21/2011
Staring Into the ECB's Mini Bazooka
Wall Street Journal 12/21/2011
A Central Bank Doing What Central Banks Do
New York Times 12/21/2011
European Banks Rush to Grasp Lifeline
Wall Street Journal 12/22/2011
Mario Draghi, head of the ECB, and the eurozone crisis with Italian bond yields approaching 8% in Dec. 2011
11/10/2011
Draghi addresses the issue of large scale purchases of bonds of Italy and Spain to ease pressure on bond yields, by leaving open the possibility of action if the EU countries take the necessary steps for a strict budgetary framework.
Grouped Articles
Return of Long-Term Bond Buyers Seen as Crucial to Europe
New York Times 06/29/2012
German Court to Weigh Bond Buying by E.C.B.
New York Times 06/10/2013
Europe Bonds May Offer More Value
Wall Street Journal 08/23/2013
Euro Strengthens as Fears Fade
Wall Street Journal 01/12/2013
Bonds of Italy, Spain Narrow Gap With U.S., German Yields
Wall Street Journal 04/09/2014
As Bond Markets Twist, Investors Shout
Wall Street Journal 06/10/2014
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