The European Central Bank ( ECB ) is the central bank for the euro and manages the eurozone monetary policy, consisting of 19 EU member states and one of the largest currencies in the world. It is one of the most important central banks in the world and is one of seven EU institutions listed in the EU Agreement (TEU). The stock of bank capital is owned by central banks of all 28 EU member states. The Amsterdam agreement established the bank in 1998, and is headquartered in Frankfurt, Germany. In 2015 the ECB President is Mario Draghi, former governor of Bank of Italy, former member of the World Bank, and former managing director of international division Goldman Sachs (2002-2005). Banks primarily occupied Eurotower before, and during, the construction of new headquarters.
The main objective of the ECB, mandated in Article 2 of the ECB Statute, is to maintain price stability within the Euro Zone. Its basic duty, stipulated in Article 3 of the Statute, is to regulate and apply monetary policy for the Euro Zone, to conduct foreign exchange operations, to administer foreign reserves of the European Central Bank System and to market financial operations of infrastructure under TARGET2 payment systems and technical platforms currently under development) for securities settlement in Europe (TARGET2 Securities). The ECB has, under Article 16 of the Statute, the exclusive right to authorize the issuance of euro banknotes. Member countries may issue euro coins, but the amount must be approved by the ECB beforehand.
The ECB is governed by European law directly, but its arrangements resemble corporations in the sense that the ECB has shareholders and share capital. The capital is EUR11 billion held by national central banks of member countries as shareholders. The key to the initial capital allocation was determined in 1998 on the basis of the state population and GDP, but the key to capital has been adjusted. Shares within the ECB are non-transferable and can not be used as collateral.
Video European Central Bank
Histori
The European Central Bank is the successor of the de facto of the European Monetary Institute (EMI). EMI was established at the beginning of the second phase of the EU Economic and Monetary Union (EMU) to address transition issues from countries that adopt the euro and prepare for the establishment of the ECB and the European Central Bank System (ESCB). EMI itself took over from the previous European Monetary Cooperation Fund (EMCF).
The ECB formally replaced EMI on 1 June 1998 under the Treaty of Maastricht, but the ECB did not exercise its full strength until the introduction of the euro on January 1, 1999, marking the third stage of the EMU. The bank is the last necessary institution for the EMU, as outlined by EMU reports Pierre Werner and President Jacques Delors. Founded on June 1, 1998.
The first bank president was Wim Duisenberg, former president of the Dutch central bank and the European Monetary Institute. While Duisenberg had been the head of EMI (taking over from Alexandre Lamfalussy from Belgium) just before the ECB emerged, the French government wanted Jean-Claude Trichet, former head of the French central bank, to become the first president of the ECB. The French argue that because the ECB will be stationed in Germany, its president must be France. This was opposed by the governments of Germany, the Netherlands and Belgium who saw Duisenberg as the guarantor of a strong euro. Tension is reduced by a man's deal in which Duisenberg will step down before his mandate expires, to be replaced by Trichet.
Trichet replaced Duisenberg as President in November 2003.
There is also tension in the ECB Executive Board, with the UK demanding a seat even though it has not joined the Single Currency. Under pressure from France, three seats were assigned to the largest members, France, Germany and Italy; Spain also demands and gets seats. Although such a system of appointment the board affirms its independence early in rejecting calls for interest rates and future candidates for it.
When the ECB was created, it covered the eurozone of eleven members. Since then, Greece joined in January 2001, Slovenia in January 2007, Cyprus and Malta in January 2008, Slovakia in January 2009, Estonia in January 2011, Latvia in January 2014 and Lithuania in January 2015, enlarging the scope and membership of its banks. Government Council.
On 1 December 2009, the Lisbon Agreement came into force, the ECB pursuant to Article 13 of the TEU, obtaining the official status of the EU institutions.
In September 2011, when Germany was appointed to the Governing Council and the Executive Board, JÃÆ'¼rgen Stark, resigned in protest from the ECB's bond-buying program, the Financial Times Deutschland called it "the ECB's end as we know it" referring to the perceived "hawkish" attitude towards inflation and the historical influence of the Bundesbank.
On November 1, 2011, Mario Draghi replaces Jean-Claude Trichet as ECB President.
In April 2011, the ECB raised interest rates for the first time since 2008 from 1% to 1.25%, with a further increase to 1.50% in July 2011. However, in 2012-2013 the ECB lowered interest rates sharply to encourage economic growth, reaching 0.25% historically low in November 2013. As soon as tariffs cut to 0.15%, on September 4, 2014 the central bank reduced its interest rate by two-thirds from 0.15% to 0.05% lowest on record.
In November 2014, the bank moved to its new place.
Maps European Central Bank
Power and goals
Destination
The main objective of the European Central Bank, set forth in Article 127 (1) of the Agreement on the Functioning of the European Union, is to maintain price stability within the Euro Zone. The Governing Council in October 1998 fixed the price stability as inflation below 2%, "year-on-year increase in the Harmonized Consumer Price Index (HICP) for the euro area below 2%" and added that price stability "is maintained in the medium term". (Harmonized Index of Consumer Prices) Unlike the Central Bank of the United States, the ECB has only one primary goal but this goal is never defined in the laws of the law, and the target HICP can be called ad-hoc.
The Governing Council justified this definition in May 2003 following a thorough evaluation of the ECB's monetary policy strategy. On that occasion, the Governing Council explained that "in the pursuit of price stability, it aims to keep the inflation rate below, but close to, 2% in the medium term". All loans to credit institutions must be pledged as required by Article 18 of the ESCB Statute. The explanation of the Governing Council has little power in the law.
Without prejudice to the aim of price stability, the Agreement also states that "ESCB will support general economic policy in the Union with a view to contributing to the achievement of the objectives of the Union".
Basic task
The basic tasks of the ECB are to define and implement monetary policy for the Euro Zone, to conduct foreign exchange operations, to administer foreign reserves of the European Central Bank System and to promote the smooth operation of financial market infrastructure under TARGET2 Payment System and currently developed platform technical assistance for securities settlement in Europe (TARGET2 Securities).
Further tasks, among others, include the exclusive right to authorize the issuance of euro banknotes. Member countries may issue euro coins, but the amount must be authorized by the ECB first (at the time of introduction of the euro, the ECB also has the exclusive right to issue coins). The ECB should also collect statistical information to fulfill the duties of the European Central Bank System, and contribute to financial stability and oversight.
Consideration of European Central Bank monetary policy
In the US-style central bank, the Federal Reserve System buys Treasury securities to inject liquidity into the economy; Eurosystem, on the other hand, uses a different method. There are about 1,500 eligible banks that can bid for short-term repo contracts with a duration of two weeks to three months.
Banks basically borrow cash and have to pay back; short period of time allows the interest rate to be adjusted continuously. When the repo record came due to the offer of the participating bank again. The increase in the quantity of records offered in the auctions enables an increase in liquidity in the economy. Decrease has the opposite effect. The contracts are conducted on the side of the European Central Bank's balance sheet assets and the resulting deposits in the member banks are done as a liability. In layman's terms, central bank liabilities are money, and an increase in deposits in member banks, done as a liability by the central bank, means that more money has been put into the economy.
To be eligible to participate in the auction, the bank must be able to offer proof of appropriate collateral in the form of a loan to another entity. This could be public debt of member countries, but a considerable range of private banking securities is also welcome. A fairly strict membership requirement for the EU, especially with regard to state debt as a percentage of any state gross domestic product, is designed to ensure that the assets offered to the bank as collateral, at least in theory, are all equally good, and all are equal equally protected from inflation risk.
Organization
The ECB has four decision-making bodies, who take all decisions for the purpose of fulfilling the ECB mandate:
- Executive Board,
- Board of Governors,
- General Council, and
- Board of Trustees.
ECB decision making body
Executive Board
The Executive Board is responsible for the implementation of monetary policy (set by the Governing Council) and the day-to-day management of the bank. It may issue decisions to the national central banks and may also exercise the powers delegated to them by the Governing Council. It consists of the President of the Bank (currently Mario Draghi), Vice President (currently Vitor ConstÃÆ'Â ¢ ncio) and four other members. They are all designated for a non-renewable eight-year term. They are appointed "from among those who are recognized standing and professional experience in monetary or banking matters by mutual agreement of the governments of Member States at the level of Heads of State or Government, on the recommendation of the Council, after consultation with the European Parliament and the ECB Governing Council". The Executive Board usually meets every Tuesday.
Josà © à © Manuel GonzÃÆ'¡lez-PÃÆ'¡ramo, a member of the Spanish Executive Council since June 2004, will leave the board in early June 2012 and no replacement is set at the end of May 2012. Spain has nominated Barcelona-born Antonio SÃÆ'¡inz de VicuÃÆ'  ± a, an ECB veteran who heads his legal department, instead of GonzÃÆ'¡lez-PÃÆ'¡ramo as early as January 2012, but alternatives from Luxembourg, Finland and Slovenia are filed and no decisions are made by Possible. After a long political battle, Luxembourg Yves Mersch, was appointed as a substitute for González-PÃÆ'¡ramo.
Government Council
The Governing Council is the main decision-making body of the Eurosystem. It consists of members of the Executive Board (six in total) and the governors of the Central Bank of the countries of the euro area (19 per 2015). Since January 2015, Council Council's treatises have been published on the internet, before 2015 the fact that the Council's treatises have not been published has caused controversy in some financial circles.
General Board
The General Council is the body dealing with issues of transition adoption of the euro, for example, fixing the exchange rate of currency replaced by the euro (resume the duties of previous EMI). It will continue to exist until all EU member states adopt the euro, at which point it will be dissolved. It consists of the President and the vice president along with the governors of all the national central banks of the European Union.
Supervisory Board
The Supervisory Board meets twice a month to discuss, plan, and carry out the ECB supervisory duties. It proposes a draft decision to the Governing Council under a non-objection procedure. It consists of Chairman (appointed for a non-renewable five-year term), Vice-Chairman (selected from among ECB Executive Board members) four ECB representatives and representatives of national supervisors. If the national supervisory authority designated by the Member State is not a national central bank (NCB), representatives of competent authorities may be accompanied by representatives of their NCBs. In such cases, joint representatives are regarded as one member for the purposes of the voting procedure.
It also includes the Steering Committee, which supports the activities of the Supervisory Board and prepares for Board meetings. It was composed by the Chairman of the Supervisory Board, Vice Chairman of the Supervisory Board, an ECB representative and five national supervisory representatives. The five national supervisory representatives are appointed by the Supervisory Board for a year based on a rotation system that ensures fair representation of the countries.
Komposisi saat ini:
- Kursi: DaniÃÆ'¨le Nouy
- Wakil Ketua: Sabine LautenschlÃÆ'Âgeger
- Perwakilan ECB: Ignazio Angeloni
- Perwakilan ECB: Luc Coene
- Perwakilan ECB: Julie Dickson
- Perwakilan ECB: Sirkka HÃÆ'¤mÃÆ'¤lÃÆ'¤inen
Langganan modal
The ECB is governed by European law directly, but its arrangements resemble corporations in the sense that the ECB has shareholders and share capital. The initial capital should have been EUR5 billion and the key initial capital allocation was determined in 1998 on the basis of the member country's population and GDP, but the key could be adjusted. The NCB euro area is required to pay their respective subscriptions to the ECB's capital in full. NCBs from non-participating countries must pay 7% of their respective subscriptions to ECB capital as a contribution to the ECB's operating costs. As a result, the ECB is endowed with an initial capital of just under EUR4 billion. Its capital is held by national central banks of member countries as shareholders. Shares within the ECB are non-transferable and can not be used as collateral. The NCBs are the only customers and shareholders of the ECB.
Today, the ECB's capital is about EUR11 billion, held by national central banks of member countries as shareholders. The share of NCB in the capital is calculated using a capital key that reflects each member's share in the total population and the gross domestic product of the EU. The ECB adjusts stock every five years and every time a new country joins the EU. Adjustments are made on the basis of data provided by the European Commission.
All national central banks (NCBs) that own shares of ECB shares as of January 1, 2015 are listed below. Non-Euro zone NCBs are required to pay only a very small percentage of the subscribed capital, which accounts for a large amount different from the total area of ​​the Euro and Non-Euro region.
Backup
In addition to capital subscriptions, NCBs from member countries that participate in the euro area provide the ECB with foreign reserve assets equivalent to around EUR40 billion. The contribution of each NCB is proportional to its share in the ECB's subscription capital, while in return each NCB is credited by the ECB with an in-euro claim equal to its contribution. 15% of the contributions are made in gold, and the remaining 85% in US dollars and Japanese yen.
Language
The internal work language of the ECB is generally English, and press conferences are usually held in English. External communication is handled flexibly: English is preferred (though not exclusively) for communication within the ESCB (ie with other central banks) and with financial markets; communications with other national bodies and with EU citizens usually in their respective languages, but the ECB's website is dominated by English; official documents such as Annual Reports in the official language of the European Union.
The ECB's independence framework
The European Central Bank (and by extension, Eurosystem) is often regarded as "the most independent central bank in the world". In general, this means that Eurosystem tasks and policies can be discussed, designed, decided and implemented in full autonomy, without pressure, or the need for instruction from any external body. The main justification for the independence of the ECB is that such institutional arrangements help maintain price stability.
ECB Independence
In practice, the independence of the ECB is pinned by four key principles:
- Political independence : NGO or government agencies and member governments may not influence members of the ECB or NCB decision-making body in the performance of their duties. Symmetrically, EU institutions and national governments are bound by treaties to respect the independence of the ECB.
- Operational and legal independence : The ECB has all the necessary competencies to achieve its price stability mandate and thereby direct monetary policy in full autonomy and with high levels of discretion. ECB governing councils are of a high degree of confidentiality, as individual voting records are not publicly disclosed (leading to suspicion that members of the Governing Council vote along national lines.) In addition to monetary policy decisions, the ECB reserves the right to issue legally binding , in its competence and if conditions set forth in the statute of the Union are met, it may impose sanctions on non-complying offenders if they violate the legal requirements set forth in the applicable Union rules. The ECB's own legal personality also allows the ECB to enter into international legal agreements independently of other EU institutions, and is a party to the legal process. Finally, the ECB can manage its internal structure as it wishes.
- Personal independence: The mandate of ECB board members is very long (8 years) and the central bank's Governor has a renewable term of office of a minimum of five years. In addition, members of the ECB board and very immune from the judicial process. Indeed, removals from the office can only be decided by the Court of Justice of the European Union (CJEU), at the request of the ECB Governing Council or the Executive Board (ie the ECB itself). Such a decision is only possible in the event of serious incompetence or error. The national governor of the national central bank of Eurosystem may be dismissed under national law (with the possibility to appeal) if they can no longer fulfill its function or are guilty of serious offenses.
- Financial independence : The ECB is the only body within the European Union whose legislation guarantees budgetary independence through its own resources and incomes. The ECB uses its own benefits generated by its monetary policy operations and can not technically go bankrupt. ECB's financial independence strengthens its political independence. Because the ECB does not require external financing and is symmetrically banned from direct financing to public institutions, it protects against potential pressure from public authorities. ECB transparency
- Voting secrecy : while other central banks publish voting records from their decision-makers, the ECB Governing Council decision is made in full discretion. However, since 2014, the ECB has issued "accounts" from its monetary policy meeting, but they remain somewhat vague and do not include individual votes.
- Access to documents : The obligation of EU bodies to make documents accessible freely after a 30-year embargo applies to the ECB. However, under the ECB's Rules of Procedure the Governing Council may decide to keep individual documents classified beyond the 30-year period.
- Securities disclosure: The ECB is less transparent than the Fed when it comes to revealing a list of held securities in the balance sheet under monetary policy operations such as QE.
- Annual report: The ECB is bound to publish reports on its activities and must submit its annual report to the European Parliament, the European Commission, the Council of the European Union and the Council of Europe. In return, the European Parliament evaluates its past activities to the ECB through its annual report on the European Central Bank (which is basically a list of non-legally binding resolutions).
- Quarterly Hearings: The European Parliament's Economic and Monetary Affairs Committee convenes a ("Monetary Dialogue") meeting with the ECB quarterly, allowing MPs to answer spoken questions to the president's ECB.
- Parliamentary inquiries: all Members of the European Parliament have the right to answer written questions to the ECB president. The President of the ECB gives a written reply within about 6 weeks.
- Promise: The European Parliament is consulted during the process of appointing members of the ECB executive board.
- The legal process: the ECB's own legal personality allows civil society or public institutions to file complaints against the ECB to the Court of Justice of the EU.
- In 2010, two temporary rescue programs have begun, the European Financial Stability Mechanism (EFSM) and the European Financial Stability Facility (EFSF). Together with the massive financial support of the International Monetary Fund (IMF), the facility has provided funds to Greece, Ireland and Portugal in 2010 and 2011.
- In 2012, the European Stability Mechanism (ESM) with a loan capacity of EUR500 billion, has been established to replace the previous temporary rescue program. ESM is intended as a permanent firewall for the eurozone to safeguard and provide quick access to financial aid programs for member states in financial distress. Spain and Cyprus have withdrawn funds from the ESM program in 2012 and 2013, focusing on the recapitalization (bail-out) of their financial sector.
- In 2013, the European Fiscal Compact became legitimate as a contract requiring EU member states to introduce domestic self-correction mechanisms at the member state level to ensure a balance of public budget and sustainable public debt levels.
- In 2014, Single Monitoring Mechanism (SSM) was introduced. This gives the European Central Bank (ECB) a supervisory role to monitor the financial stability of banks in euro zone countries (full members) and other EU countries. This oversight is intended as a first step to prevent the need for a bank bailout in EU countries that could cause or contribute to the debt crisis in each state.
- Allocate substantial national income to pay off debt.
- Recalculate national expenditures (such as education, infrastructure, and welfare transfer payments) to make payments.
- To lend to countries with financial difficulties (eg the Greek bailout).
- To intervene in the primary and secondary debt markets. Interventions in the secondary debt market will only be based on ECB analysis acknowledging the presence of exceptional financial market conditions and risks to financial stability.
- Act on the basis of prevention programs.
- Recapitalization of financial institutions through financial loans to the government
- Economy
- The European Banking Authority
- European Systemic Risk Board
- Open market operations
- European Central Bank, official website.
- The origin and development of European organizations: European Central Bank, CVCE.eu website.
- European Central Bank: history, role and function, ECB website.
- European Central Bank Statutes (2012)
In addition to its independence, the ECB is subject to limited transparency obligations, in contrast to the standards of the EU Institute and other major central banks. Indeed, as Transparency International points out, "The Treaties establish transparency and openness as the principles of the EU and its institutions, but they give the ECB the exclusion of some of these principles." According to Article 15 (3) TFEU, the ECB is bound by the principles of transparency of the EU "only when carrying out its administrative duties" (exceptions - leaving the term "administrative duties" undefined equally applicable to the Court of Justice of the European Union and the European Investment Bank). "
In practice, there are some concrete examples where the ECB is less transparent than other agencies:
ECB democratic accountability
In return for its high level of independence and discretion, the ECB is accountable to the European Parliament (and to a lesser extent to the European Court of Auditors, the European Ombudsman and the Court of Justice of the European Union (CJEU).) In practice, this accountability involves five main mechanisms:
European debt crisis
From late 2009 a handful of southernmost member states of the euro zone began to be unable to pay the national government debt in the Euro currency or to finance the rescue of the troubled financial sector under their national oversight without the help of a third party. This so-called European debt crisis began after the newly elected government of Greece stopped covering its true debt and budget deficit and openly communicated the dangers that would result from the default of Greek sovereignty. Seeing the government default in the euro zone as a surprise, the general public, international and European institutions, and the financial community began to intensively reassess the economic situation and creditworthiness of the eurozone countries. Eurozone nations that are deemed inadequately financially sustainable on their current path, face a wave of credit downgrades and rising borrowing costs including an increase in interest rate spreads. As a result, the ability of these countries to borrow new money to finance their budget deficits further or to refinance existing unsustainable debt levels is greatly reduced.
Reform due to fiscal bailout
The ECB has stated that the EU and its member countries are in the primary responsibility for resolving the fiscal crisis of some member states. Until 2009 there has not been sufficient instruments in place at the eurozone level to prevent or resolve the debt crisis in member countries Several systems have been in place since then to fill this gap:
Article 125 of the Agreement on the Functioning of the EU prohibits the financial bailout of other eurozone countries that have problems to serve their financial obligations. The emergency arrangements of various eurozone rescue funds to help crisis countries to fulfill their obligations to some extent constitute a violation of the non-bailout clause, but it is documented that there is no alternative that can be agreed by eurozone countries in situations of debt crisis unexpected this.
Greece has the greatest need for reform, but also most of the problems to implement it, so that the exit of Greece, also called "Grexit", has been widely discussed. Germany, as the country's large and financially stable in focus to be asked to guarantee or pay the debts of other countries, do not encourage their exit. Their position is to keep Greece in the euro zone, but not at any cost. If the worst comes to the worst, priority should be given to the stability of the euro.
ECB response to the crisis of the euro
There are various possible responses to the problem of bad credit in the banking system. One is to encourage debtors to make greater efforts to make good their debt. With public debt this usually means asking the government to maintain debt payments while reducing expenses in other forms. Such a policy often involves the cutting back of popular social programs.
Strict policies related to social spending and employment in the state sector have led to political unrest and protests in Greece. Another response was to shift the losses from the central bank to private investors who were asked to "share the pain" of a partial default that took the form of rescheduling of debt payments.
However, if debt rescheduling causes a loss on loans held by European banks, it weakens the private banking system, which then puts pressure on the central bank to come to the aid of these banks. Private sector bondholders are an integral part of the public and private banking system. Another possible response is for rich member countries to guarantee or buy debts of countries that default or the possibility of default. This alternative requires that tax revenues and credits of rich member countries be used to refinance previous loans from weaker, and politically controversial member states.
Purchase of bond
Unlike the Fed, the ECB usually does not buy bonds directly. The normal procedure used by the ECB to manipulate the money supply has been through so-called refinancing facilities. In this facility, bonds are not purchased but are used in reverse transactions: repurchase agreements, or secured loans. Both transactions are similar, ie bonds used as collateral for loans, legal differences. In a repurchase of collateral ownership becomes ECB until the loan is repaid.
This changed with the recent sovereign debt crisis. The ECB can always, and through late summer of 2011, buy bonds issued by weaker countries despite assuming, thus, the risk of a worsening balance sheet. The ECB's purchases focus primarily on Spanish and Italian debt. Certain techniques can minimize their impact. The purchase of Italian bonds by the central bank, for example, is intended to dampen international speculation and strengthen the portfolio in the private sector as well as central banks.
The assumption is that speculative activity will decrease over time and asset value increases. Such a move is similar to what US federal reserves do to buy subprime mortgages in the 2008 crisis, except in the European crisis, purchases are member state debts. The risk of such a step is to reduce the value of the currency.
On the other hand, certain financial techniques can reduce the impact of such purchases on the currency. One is sterilization, where high-value assets are sold at the same time as the purchase of weaker assets, which keeps the money supply neutral. Another technique is to accept only bad assets as long-term security (as opposed to short-term swaps) to be held until their market value is stable. This would mean, as the quid pro quo, the adjustment in taxation and spending in the economies of the weaker countries to increase the perceived value of assets.
When the ECB buys bonds from other creditors such as European banks, the ECB does not disclose transaction prices. Creditors make a profit with bonds sold at prices that exceed market prices.
On June 18, 2012, the total ECB has spent EUR212.1bn (equivalent to 2.2% of Euro Zone GDP) for the purchase of bonds that include direct debts, as part of the Securities Market Program (SMP) running since May 2010. On September 6, 2012, the ECB announced a new plan to buy bonds from eurozone countries. The duration of the previous SMP is only temporary, while the Outright Monetary Transactions (OMT) program does not have a time limit or ex-ante size. On September 4, 2014, the bank went further by announcing it would buy bonds and other debt instruments primarily from banks in an effort to increase the availability of credit for businesses.
The Emergency Loan Program (ELA) program is designed for financial institutions in liquidity crises, such as the Greek banks on the way from the Greek finance procurement 2015, when banks are experiencing massive deposits.
On March 9, 2015, the ECB initiated a quantitative easing program, designed to reduce state pressure in its member countries. Purchase initially EUR60bn per month and then increased to EUR80bn per month. The program is expected to last until at least the end of 2018.
Long-term refinancing operation
Although ECO's main refinancing operation (MRO) is from a repo auction with weekly maturity and monthly maturity, the ECB is now undergoing long-term refinancing operations (LTROs), maturing after three months, six months, 12 months and 36 months. In 2003, refinancing through LTROs amounted to 45 bln euros or about 20% of overall liquidity provided by the ECB.
The ECB's first extra-long refinancing operation (LTRO) with six months maturity was announced in March 2008. The longest offered tender was three months. It announces two 3 months and one full six month period of Long Term Refinancing Operations (LTROs). The first tender was completed on April 3, and more than four times the excess demand. The EUR25 billion auction attracted EUR103.1 billion, from 177 banks. Another six-month tender is awarded on July 9th, again with a total of EUR25 billion. The first 12 months of LTRO in June 2009 had nearly 1100 bidders.
On December 21, 2011 the bank instituted a low-interest loan program with a three-year tenor (36 months) and a 1% interest to European banks that received loans from the bank portfolio as collateral. A loan of EUR489.2 billion (US $ 640 billion) was announced. The loan is not offered to European countries, but government securities issued by European countries will be accepted as collateral such as securities backed by mortgages and other commercial papers that can be proven safe. The program was announced on December 8, 2011 but the observers were surprised at the volume of loans made when it was implemented. Under the LTRO, the company lent EUR489bn to 523 banks for a very long period of three years at a rate of only one percent. The largest amount of EUR325bn is tapped by banks in Greece, Ireland, Italy and Spain. In this way the ECB tries to ensure that banks have enough money to repay EUR200bn of their own maturing debt in the first three months of 2012, and at the same time keep operating and lending to businesses so that the credit crunch not hampering economic growth. He also hopes that banks will use some of the money to buy government bonds, effectively easing the debt crisis.
On February 29, 2012, the ECB held a second 36-month auction, LTRO2, providing eurozone banks with EUR529.5 billion further in low-interest loans. This auction of second long-term refinancing operations saw 800 banks take part. This compares favorably with 523 banks that participated in the first auction on December 21, 2011. New net borrowings under February auction of EUR313 billion - of the existing EUR256bn existing ECB loans, EUR215bn rolled into LTRO2.
Power and purpose during the European banking crisis
Europe's debt crisis has revealed some relative weaknesses in the debt of member countries such as Portugal, Ireland, Greece and Spain.
Rescue operations involving state debt have included temporarily or weakly displaced bad assets from the balance sheets of weak member banks into the European Central Bank's balance sheet. The act is seen as monetizing and can be seen as an inflation threat, in which the strong member countries of the ECB bear the burden of monetary expansion (and the potential for inflation) to save weak member states. Most central banks prefer to move weak assets from their balance sheets with some sort of agreement on how the debt will continue to be served. This preference usually causes the ECB to argue that the weaker member states should:
The European Central Bank has increased purchases of member countries' debts. In response to the crisis of 2010, several proposals have emerged for the issue of European collective bonds that will allow central banks to buy European versions of US Treasury bills. To make the debt assets of European countries more similar to US Treasury, collective guarantees of member state solvency will be necessary. But the German government has rejected this proposal, and other analyzes suggest that the "euro disease" is due to the relationship between state debt and the failure of the national banking system. If the European central bank has to deal directly with a failed banking system, the sovereign debt will not be seen as leveraged relative to the national income in the financially weaker member states.
On December 17, 2010, the ECB announced that it would double its capitalization. (The ECB's latest balance sheet before the announcement mentions capital and reserves of EUR2.03 trillion.) 16 member countries' central banks will transfer assets to the ECB's ledger.
In 2011, European member countries may need to raise debts of US $ 2 trillion. A portion of this will be a new debt and some will be the previous debt that "rolled over" because the older loans reached maturity. In both cases, the ability to raise money is dependent on investor confidence in the European financial system. The ability of the EU to ensure the debt obligations of member states has direct implications for the core assets of the banking system that support the Euro.
The Bank shall also cooperate in the EU and internationally with third bodies and entities. Finally, he contributed to maintaining a stable financial system and monitoring the banking sector. The latter can be seen, for example, in bank intervention during the subprime mortgage crisis when lending billions of euros to banks to stabilize the financial system. In December 2007, the ECB decided jointly with the Federal Reserve System under a program called the futures auction facility to boost dollar liquidity in the eurozone and stabilize the money market.
In late May 2012, looking forward to further challenges with Greece, the head of the Bundesbank and ECB board member Jens Weidmann suggests that the council may veto "emergency liquidity assistance" (ELA) to, for example, Greece through a two-thirds majority of the Council. If Greece chooses to repay its debt but wants to remain in the Euro, the ELA will be one way to accommodate the liquidity needs of the country and its banks or, alternatively, to accelerate the departure.
On October 31, 2012, the ECB announced it was removed under the "Insurance Bonds Purchase Plan plan, which is one of the crisis measures aimed at supporting the shaky banking system of the 17 euro zone countries.
On Wednesday, February 24, 2016, as part of the Bundesbank's annual press conference, the Bundesbank president and European Central Bank Governing Council member Jens Weidmann rejected deflation given the current ECB stimulus program, showing healthy German economic conditions and that the euro area is not bad, on the eve of the 9-10 March 2016 meeting.
European financial stability facility
On May 9, 2010, 27 EU Member States agreed to incorporate the European Financial Stability Facility (EFSF). The EFSF's mandate is to maintain financial stability in Europe by providing financial assistance to the Member States of the European Zone.
EFSF is authorized to use the following instruments relating to the appropriate requirements:
EFSF is supported by a guaranteed commitment from Euro Zone member states for a total of EUR780bn and has a loan capacity of EUR440bn. In 2011, it was rated the best credit rating (AAA by Standard & Poor's and Fitch Ratings, Aaa by Moody's)
Monetary policy tool
The main monetary policy instrument of the European Central Bank is a guaranteed loan or repo agreement. These tools are also used by the US Federal Reserve Bank, but the Fed makes more direct purchases of financial assets than its European counterparts. The guarantees used by the ECB are usually high-quality public and private sector debt.
The criteria for determining "high quality" for public debt has become a prerequisite for membership in the EU: total debt should not be too great in relation to gross domestic product, for example, and deficits in any given year should not be too great. Although these criteria are quite simple, a number of accounting techniques may conceal the basic reality of fiscal solvency - or the same flaws.
In central banking, the central bank's privileged status is that it can make as much money as needed. At the Federal Reserve Bank of the United States, the Federal Reserve buys assets: typically, bonds issued by the Federal government. There is no limit on the bonds that can be bought and one of the tools available in a financial crisis is to take extraordinary measures such as the purchase of large amounts of assets such as commercial paper. The purpose of such operations is to ensure that adequate liquidity is available for the functioning of the financial system.
Dependency on credit ratings
Think-tanks such as the World Pension Board also argue that European legislators have encouraged dogmatically to adopt Basel II recommendations, adopted in 2005, amended in EU law through the Capital Requirements Rule (CRD), effective since 2008. In essence, they forced European banks, and more importantly, the European Central Bank itself, for example, when measuring the solvency of financial institutions, to rely more on the assessment of credit risk standards marketed by two non-European private institutions: Moody's and S & P.
Location
The bank is based in Ostend (East End), Frankfurt am Main. The city is the largest financial center in the Euro Zone and the location of the bank therein is fixed by the Amsterdam Agreement. The bank moved to a newly built headquarters in 2014 designed by the Vienna-based architectural office, Coop Himmelbau. The building is approximately 180 meters (591 feet) high and will be accompanied by other secondary buildings on the park site at the site of the former wholesale market in eastern Frankfurt am Main. The main construction began in October 2008, and it is expected that the building will become architectural symbol for Europe. Although designed to accommodate twice the number of staff operating in the former Eurotower, the building is maintained because the ECB is responsible for banking supervision and more space is required.
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External links
Source of the article : Wikipedia
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