Here is What Draghi And The ECB Have Just Unleashed Upon The World
KingWorldNews.com
March 15, 2016
On the heels of yesterday’s announcement by Draghi and the ECB, today one of the greats discussed what the ECB has just unleashed upon the world.
Here is a portion of today’s note from Art Cashin: The Key To Draghi’s Proposal – My good friend, and fellow market veteran, David Kotok of Cumberland Advisors wrote a brief analysis on a key feature of Mr. Draghi’s proposal last week. As with everything David writes, it is clear and insightful. Here’s a bit:
Draghi and the ECB announced that they will start a series of targeted longer-term refinancing operations (TLTRO). The first will occur in June 2016. The term will be four years. The cost of this borrowing by a bank is likely to be a zero interest rate. But under certain conditions it will be at the negative policy rate. Thus the central bank will be paying the commercial bank to borrow from it.
Imagine what would happen in the United States if the Federal Reserve structured a program so that any bank, whether Bank of America or your local community bank, were to be paid by the Fed when that bank borrowed from the Fed and used the funds to make loans to you or to buy assets in the market. Right now in the US, banks take their excess funds that are not used for loans or assets and deposit them at the Fed. For an overnight deposit the Fed pays the bank an annualized rate of 0.50%. But the American bank is then charged a fee by the Federal Deposit Insurance Corporation (FDIC), so the net amount it receives from the Fed is less than the gross 50 basis points that the Fed pays. Essentially this transaction is a transfer from the Fed to the FDIC, which really means it is a transfer from the US Treasury to FDIC, since the Fed’s marginal dollar ends up being sent to the US Treasury anyway.
The Rest…HERE
