How Much Fiscal Backing Must the ECB Have?: The Euro Area Is Not the Philippines
The ECB has accepted increasing amounts of rubbish collateral since the crisis started leading to exposure to serious private sector credit risk (i.e. default risk) on its collateralised lending and reverse operations ("repo"). This has led some commentators to argue that the ECB needs "fiscal back-up" to cover any potential losses to be able to continue pursuing price stability. This Brief argues that fiscal backing is not necessary for the ECB for three reasons. Firstly, the ECB balance sheet risk is small compared to the FED and BoE as it neither increased its quasi-fiscal operations as much as the Fed or the BoE nor did it engage to a very large extent in outright bond purchases during the financial crisis. Secondly, the ECB's specific accounting principles of repo operations provide for more clarity and earlier recognition of losses. Thirdly, the ECB can draw on substantial reserves of the euro area national banks.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.diw.de/en
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marvin Goodfriend, 2001.
"Why we need an "accord" for Federal Reserve credit policy : a note,"
Federal Reserve Bank of Richmond, issue Win, pages 23-32.
- Marvin Goodfriend, 1994. "Why we need an "accord" for Federal Reserve credit policy: a note," Proceedings, Federal Reserve Bank of Cleveland, pages 572-584.
- Goodfriend, Marvin, 1994. "Why We Need an "Accord" for Federal Reserve Credit Policy: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 572-80, August.
- Buiter, Willem H., 2008. "Can Central Banks Go Broke?," CEPR Discussion Papers 6827, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp996. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek)
If references are entirely missing, you can add them using this form.