28. September 2012
Almost unnoticed the Bundesbank became a net debtor of banks in Germany back in mid-2010. Germany's banks currently have over EUR 430 bn invested with the Bundesbank, while their refinancing credits from the Bundesbank amount to just under EUR 80 bn. This was not changed materially by the ECB's increase in refinancing volumes in the context of the first and second very long-term refinancing operations (vLTRO), either. On the contrary, net claims by German banks have risen further since the beginning of the year.
The widening net position of German banks vis-à-vis the Bundesbank is a reflection of an uneven distribution of liquidity in the euro area. While banks in the southern EMU countries are receiving additional liquidity from the ECB, part of this liquidity is flowing to the core countries as a result of the crisis.
This asymmetrical distribution of liquidity represents a major challenge for the European Central Bank. De facto, the refinancing rate and the asset side of the ECB balance sheet still represent the transmission channels of monetary policy in the peripheral states. In Germany, by contrast, monetary policy is transmitted through the (lower) deposit rate and the liabilities side of the central bank balance sheet. The single currency area and the single monetary policy stance (especially the full allotment policy for refinancing operations) are making it harder for the ECB to sterilise excess liquidity in the core countries. If conditions for liquidity absorption were raised, this could further accelerate flows to the core countries and the extension of the central bank balance sheet. However, limiting banks’ access to liquidity is not an option at present given the problems facing the southern countries.
In fact, the Bundesbank is no exception when it comes to its role as net debtor vis-à-vis the domestic banking sector. The Swiss National Bank (SNB), for instance, and also the US Fed are currently in a similar situation. In Switzerland the central bank became a net debtor through forex market interventions, and in the US through the purchase of securities. The role of the Bundesbank is similar in some respects to that of the SNB, which is controlling its exchange rate to defend against speculative inflows and in doing so accepting balance sheet extension. Unlike other central banks, however, the Bundesbank did not become a net debtor as a result of an active monetary policy decision. Neither can it condone the latent liquidity surplus in the domestic banking sector, as it in principle harbours inflationary potential.