Typography

Bankers clear and settle with each other at a clearing house Perry Mehrling had in interesting comment about how to settle the Eurosystem's Target2 imbalance problem. If there were Eurobills, balances could be settled periodically by transfer of assets, just as is done in the Federal Reserve System. More precisely, if there were a System Open Market Account at the ECB, in which all of the national central banks held shares, settlement could be made by transfer of shares. Perry is talking about adapting the structure of the Fed's Interdistrict Settlement Account to Europe. To understand the ISA, check out my Idiot's Guide to the Federal Reserve Interdistrict Settlement Account . In short, the 12 regional Reserve banks run up debts and credits to each other over the course of the year due to changes in payments flows. These debts and credits are settled each year by transferring securities that have been bought in open market operations from debtor Reserves banks to credit...

Two comments on The Money View. One on Perry Mehrling's The IMF and the Collateral Crunch and the other on Daniel H. Neilson's Is there an ECB? Neilson links to the erroneous Tornell/Westerman piece. My comments on this are in a previous post . In short, Karl Whelan's Worse than Sinn clarifies the issue. Sterilization by the Bundesbank is not happening.  Merhling and me discuss the nature of the transactions conducted between borrowing NCBs and the lending ECB. Perry, I can't find any explicit reference to whether intra-Eurosystem credits are collateralized or not. But I still think not. Collateral is posted by a borrower to a lender to protect the lender should the borrower default. Then the lender can collect the collateral instead. But ECB losses are dealt with in a specific way. See bottom of http://www.ecb.int/ecb/orga/capital/html/index.en.html In short, if the ECB suffers a loss on a loan to an NCB then that loss is allocated to all NCBs according to the ECB...