IMF to Europe: could you try TAF please?

Posted by Joseph Cotterill on Jun 22 12:05. 4 comments | Share

In this context, it will be essential to bring the unproductive debate about debt re-profiling or restructuring to closure quickly.
We were so distracted by the IMF’s pragmatic controversial application of the word ‘unproductive’ in its Article IV consultation on the eurozone… More…

In this context, it will be essential to bring the unproductive debate about debt re-profiling or restructuring to closure quickly.

We were so distracted by the IMF’s pragmatic controversial application of the word ‘unproductive’ in its Article IV consultation on the eurozone…

… that we completely missed this gem from the report:

Many banks still rely heavily on European Central Bank (ECB) financing, and market access might not be immediate even after a recapitalization. A conditional term funding facility for private illiquid assets, possibly operated by the ECB but with the explicit backing of euro area sovereigns (e.g., via the EFSF), would smooth the transition, while protecting the ECB’s independence and flexibility and reinforcing the incentives to tackle the banking problems at their root.

In short, the IMF wants a TAF-TARP hybrid for Europe.

In effect, the IMF is telling the ECB to get lost.

The Fund’s proposal recalls the putative ‘Banks Under Restructuring’ facility of earlier this year.

It was first mooted back in March to provide funding for Irish banks following the decimation of their collateral pools at the ECB. And then it died. Apparently the ECB squelched the proposal for the effects it would have on the Bank’s hitherto unified collateral policy. Although since the issue of collateral decimation has returned to haunt Greek banks as a default on their government bond holdings gets nearer, that’s been looking pretty awkward.

So, while this idea is targeted at private assets (and goodness knows that the Greek and Irish banks’ asset-backed securities are struggling to meet collateral criteria) it’s interesting that it mentions EFSF backing so prominently.

Because it’s not like there hasn’t been talk of EFSF backing for public assets…

Related links:
Greek credit event? Default? Who cares? Danske Bank doesn’t – FT Alphaville
Squaring the Greek circle – FT Alphaville

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