Citigroup said:We leave you with a final thought. If the Irish banks cannot borrow additional
amounts from the Eurosystem using collateral issued by or guaranteed by the
Irish sovereign, why are they interested in borrowing from the CBI’s ELA? At
best, the liabilities of the ELA are as good (in terms of credit risk) as the Irish
sovereign. Are the counterparties of the Irish banks that get paid with the liquid
assets provided to the Irish banks by the ELA, under the impression that these
assets are Eurosystem liabilities rather than liabilities of the informal ELA
subsidiary of the Central Bank of Ireland that is not part of the Eurosystem.
Why does anyone accept payment in ELA liabilities? Is it because no-one can
tell the difference between an ELA deposit at the CBI and a Eurosystem deposit
at the CBI?
Sunny, I somewhat messed up the quote but I have fixed it now. I would be interested in your take. Looks like Citigroup were trying to be oh so clever, they are suggesting that those counterparty banks who are accepting this liquidity don't know what they are doing. I think Laura's explanation is much more plausible. Hers is a very well researched piece so much better than the scare stories on this particular aspect that I have seen from others, but it must surely be as a result of very well informed contacts which is what good journalism is all about.I don't understand what they are saying in that paragraph at all. Must read the document and might make more sense.
Sunny when I first read this Citi piece I believed them. But then some obvious fault lines were shown up on Irisheconomy.ie. What is cash? For a bank it is a deposit in some other bank or Central Bank. I read the Citi argument that these guys were getting deposits in the CBI which were not underpinned by the ECB. I believed that but then one asks why would same bank not simply transfer its deposit with the CBI to the ECB. So the Citi argument was based on a premise that these counterparty banks didn't realise that CBI deposits were only as good as Irish sovereign debt and therefore didn't get round to transferring to the ECB. Laura's explanation is much more credible and it goes like this:Duke, I dont get the point they are making about counterparties of the Irish banks that get paid from the liquid assets of the ELA scheme not realising that these are from the ICB and not the ECB. Surely the ICB is providing cash to the Irish banks so why would a counterparty care where the cash came from as long they are paid? Citi are usually pretty good so will reserve judgement but that paragraph is very confusing.
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