European Banks Are PAID TO BORROW For First Time Ever As Euribor Goes Negative

This is of course perfectly normal and nothing to worry about.


Prepare for collapse.

European Banks Are Paid To Borrow For First Time Ever As Euribor Goes Negative (ZeroHedge, April 21, 2015):

Mario Draghi said this week that the transmission channels for European Q€ were opening up and crowed how well his cunning plan was working (by well we assume he means stocks are up). Today we get the ultimate test of that ‘transmission’ as 3-Month EURIBOR fell below 0.00% for the first time ever (likely wreaking havoc on European derivative pricing models). In English that means banks are being paid to borrow from one another in the interbank money-markets (which sounds a lot like a ‘glut’ of excess cash) seemingly confirming ICMA’s de Vidts fears: “We are scared about the [repo] market freezing,” as the ECB is “driving without headlights in the dark.”Of course this is yet another disturbing distortion on the heels of homeowners being paid to take out mortgages…

Banks now paid to borrow from one another…


As fears of the repo market in Europe freezing appear to be confirmed… (via Reuters),

The European Central Bank (ECB) risks secured-lending or repo markets grinding to a halt unless it works more closely with national central banks (NCBs) to improve liquidity, a senior trade association official told Reuters.

The 5.5 trillion euro ($6 trillion) repo market is vital for banks and companies to manage their cash balances, offering short-term loans in exchange for government debt as collateral.

Godfried de Vidts, the chair of the International Capital Market Association’s European Repo Committee, said unless the ECB took action within the next few months, investors might start avoiding euro zone bonds.

That might push borrowing costs up in the longer term.

“Investors could become reluctant to invest in euro zone debt,” he said, noting that his committee had voiced its concerns to officials at the ECB.

The ECB has allowed bonds bought under its trillion-euro purchase scheme (QE) to be used as security for loans, a precaution against any surge in repo prices that might occur as QE sucks securities out of the market.

But traders say that the system does not allow bonds to be leased for long enough, is too restrictive on the amount parties can borrow and is very expensive.

“We are scared about the market freezing,” de Vidts said.

In recent weeks, one 10-year Bund became so scarce that market players paid up to 2.5 percent to lend cash in exchange for the German bond, dealers said.

De Vidts said the ECB’s “securities lending” framework also relies too heavily on NCBs offering their own lending programs, and many of them have not yet put systems in place.

NCBs are responsible for 80 percent of purchases under QE, with the ECB directly buying the remaining 20 percent in the roughly 7-trillion-euro euro zone government bond market.

“We are driving without headlights in the dark,” said de Vidts, proposing that the ECB centralizes the scheme in Frankfurt.

“You are getting this scenario – which is a nightmare for the repo market – of a re-nationalization of a market that had developed to become European.”

Last week, ECB President Mario Draghi said the bank saw no evidence QE was creating a shortage of bonds, or that this might happen in the future.

*  *  *

This won’t end well.


1 thought on “European Banks Are PAID TO BORROW For First Time Ever As Euribor Goes Negative”

  1. And who are the people being paid to borrow? Anyone who can feed the local economy or benefit? No, just greedy guts who have sucked excessive funds out of everyone and everything around them……..they continue to feed each other free money, while the rest of the economy languishes and suffers.

    Except for a few false pockets of prosperity, spying, military contracting and, of course banking, cash continues to flow but no real growth exists.

    I am still in hospital, for the first time since the advent of the DVR, am exposed to local TV that passes for news, financial reporting, and what is called entertainment. It is totally removed from reality. Unemployment is down, earnings are up…….All of the real stories such as reported here are passed over and ignored. It is shocking to me……thank goodness for the web.

    Your writer is spot on. What is happening in Greece and its obvious effect on the EU, US and China ought to shake any real market. Unfortunately, the real market is hidden until the average consumer of information is caught unawares……pouring more profits into the hands of the few at the cost of everyone else. GE is an excellent example. They are dumping assets while retaining debt……….the result is obvious to anyone paying attention.

    The growing volcano that is the Chinese economy is called “Yums China problem” by the moneychanger reporters because Yum was up over $2.00 today. No mention made of the Chinese government owned corporation defaulting on their bond debt payments. Bloomberg used to be a credible financial news outlet, but no longer. Every investor is on his own.

    Great article.


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