Euro­pean Cen­tral Bank sends cen­tral banks a €5 bil­lion bill

The Pak Banker - - Company& -

FRANK­FURT: Eu­ro­zone coun­tries have been sent a bill for the in­creas­ing risks be­ing borne by the Euro­pean Cen­tral Bank as it acts to re­store in­vestor con­fi­dence in the con­ti­nent's 12-year-old mon­e­tary union.

The ECB an­nounced on Thurs­day that na­tional cen­tral banks would fund a €5bn ($6.6bn) rise in its sub­scribed cap­i­tal from the present €5.76bn.

Pur­chases of eu­ro­zone govern­ment bonds have been stepped up re­cently by the ECB, even though it be­lieves re­spon­si­bil­ity for re­solv­ing the cri­sis lies mainly with eu­ro­zone gov­ern­ments.

In a state­ment, the ECB said the cap­i­tal in­crease re­flected the risks it was bear­ing on for­eign ex­change and gold hold­ings as well as on se­cu­ri­ties. But Gilles Moec, Euro­pean econ­o­mist at Deutsche Bank, said the an­nounce­ment was a re­minder that "let­ting the ECB fight alone" was "no free lunch".

Con­fir­ma­tion of the ECB's first ever gen­eral cap­i­tal in­crease fol­lowed a sched­uled ECB gov­ern­ing coun­cil meet­ing in Frank­furt but co­in­cided with the Euro­pean Union sum­mit in Brus­sels fo­cused on the eu­ro­zone debt cri­sis.

The cap­i­tal in­crease, which could see na­tional cen­tral banks' prof­its be­ing paid to the ECB, will al­low the ECB to in­crease sig­nif­i­cantly the pro­vi­sions it makes in its bal­ance sheet against pos­si­ble losses.

Banks, pub­lic au­thor­i­ties and util­i­ties in the 16-coun­try eu­ro­zone will be forced to speed up their switch to a more ef­fi­cient pan-Euro­pean pay­ment sys­tem af­ter Brus­sels set dead­lines for adopt­ing the struc­ture, write Nikki Tait and Ralph Atkins.

The new sys­tem, known as Sepa or the sin­gle Euro­pean pay­ments area, should make cross-border pay­ments as quick and ef­fi­cient as those done within na­tional bor­ders.

Credit trans­fers will have to be done un­der the new sys­tem within 12 months of a for­mal reg­u­la­tion com­ing into force, and di­rect deb­its within 24 months. The reg­u­la­tion, re­leased in draft on Thurs­day, needs to be ap­proved by the Euro­pean par­lia­ment and mem­ber states, but Euro­pean Union of­fi­cials hope this will hap­pen by mid-2011.

As an in­sti­tu­tion, the ECB ac­counts for less than 10 per cent of the bal­ance sheet of the "euro-sys­tem" net­work of eu­ro­zone na­tional cen­tral banks, which im­ple­ment mon­e­tary pol­icy. ECB op­er­a­tions pro­vid­ing liq­uid­ity to the bank­ing sys­tem, which were hugely ex­panded af­ter the Lehman Broth­ers col­lapse in Septem­ber 2008, do not ap­pear on its bal­ance sheet. But the ECB's 2009 ac­counts, the lat­est avail­able, show it held more than €2bn in cov­ered bonds acquired as part of an ear­lier se­cu­ri­ties pur­chas­ing pro­gramme. This year's ac­counts are likely to show it hold­ing a small but sig­nif­i­cant share of govern­ment bonds pur­chased since May, which by the end of last week were worth €72bn. No de­tails are given but most are likely to have been is­sued by the Por­tuguese, Ir­ish and Greek gov­ern­ments. -PB News

KARACHI: Lawyer of Dr. Aafia Sid­diqui, Tina Forster, ad­dresses a press con­fer­ence at Karachi Press Club. Sis­ter of Dr. Aafia, Dr. Fauzia Sid­diqui, is also present on the oc­ca­sion. -On­line

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