European banks borrowed $50 bln dollars from the ECB this morning to help meet their dollar funding needs.
Before the QE 2.5 crowds starts screaming about the Fed creating reserves out of nowhere, remember, this is a currency swap. The ECB “lent ” the Fed the equivalent amount in euros (37.3 bln), also created out of thin air…
Looking ahead to tomorrow’s ECB meeting, there seems to be broad consensus on the outcome. The market expects three things:
- A cut in the refi rate to 1.0% from 1.25%
- Long-term refinancing operations that may extend up to 3 years. Anything shorter than two years would be a surprise
- Easier collateral rules, allowing banks to post other types of securities beyond that which is accepted by the ECB today.
