This comes from this morning's FT Alphaville email:
Spain is considering directly injecting its own government debt into BFA-Bankia to help fund the stricken lender's €19bn nationalisation, in an attempt to sidestep high bond market rates, reports the FT. The plan involves Madrid issuing Spanish government guaranteed debt to Bankia in return for equity, with the bank then able to deposit the bonds with ECB as collateral for cash.
Think about it: if Spain can do this why can't the UK issue £20 billion of new UK debt to a new National Investment Bank in exchange for equity with the National Investment Bank then using those UK bonds as collateral for ECB cash at 1%.
If the EU can allow this to fund a failed bank to clear bad property debts why not to fund a new bank to create jobs?
Any takers anyone?
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Do you mean BoE? I’m not sure the UK can obtain collateralised lending from the ECB…
I’m happy if it can’t go to the ECB….my point is either way the precedent is set, BoE will do for me
Ben, you’re right. UK gilts are not on the list of acceptable collateral at the ECB, because the UK is not a member of the Euro. But the new gilts could be repo’d at the Bank of England.
Point taken
I wrote in haste!
Hey ho – posts made before the school run sometimes need tweaking after the pst run coffee
I’m not sure that EU rules allow for a state to do this & lend internally to their banks. I seem to remember some problems with this for RBS after Fred had shredded it.
Or perhaps the EU rules allow it for other countries but not the UK?
The EU don’t allow this
So what now?