Former ECB Member Says Central Bank Now a Bad Bank

The European Central Bank is turning into a European “bad bank” by loading up on bundled-up loans, and its record-low interest rates will not do anything to promote lending in the euro zone, former ECB chief economist Juergen Stark said.

Stark, a former ECB executive board member and an arch-hawk, quit the bank in 2011 to protest its policies. Now he says the September rates cut would be “ridiculous, if the matter was not so serious”.

The ECB cut its main interest rate to 0.05 percent on Thursday and pledged to buy asset-backed securities (ABS) on top of its four-year loan offer, or TLTROs, in a fresh attempt to ward off deflation and stimulate the euro zone economy.

“The ECB is taking enormous risks onto its balance sheet with the purchases of ABS – of whatever quality – and is turning itself into a European bad bank,” Stark wrote in a guest column for the German newspaper Handelsblatt, which is to be published on Tuesday.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza