Capital Markets

FT: Back to the future, by Ralph Atkins, Nov. 25, 2009

The headline news from today’s Bundesbank financial stability review is about the €90bn in further write-downs it expects from German banks. But there are some insights on Bundesbank thinking on monetary policy as well - although Axel Weber, Bundesbank president, was not at the press conference to elaborate.

In particular, the Bundesbank favours an eventual return to “variable rate tenders” in liquidity-providing operations, in which the European Central Bank determines the amount of liquidity injected into the bank system. Since the collapse of Lehman Brothers it has, instead, been matching banks’ bids in full at a fixed interest rate.

As such, the Bundesbank has highlighted an emerging consensus at the ECB that, once its “exit strategy” is completed - which may not be for some time - its operating system should look pretty much as it was before the crisis.
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Deutsche Bundesbank: Financial Stability Review 2009, Nov. 2009