ECB warns that financial imbalances are growing and look likely to continue, mainly at global level, but also in the euro area.
The ECB warns that investors in the euro area may have underestimated or taken on an excessive level of risk. The financial stability outlook remains delicately balanced.
The ECB says that long-term interest rates and risk premia have been driven too low in some financial markets and that intense competition could have encouraged banks to loosen credit standards.
ECB President Trichet warns of instability in global financial markets: "There is now such creativity of new and very sophisticated financial instruments ... that we don't know fully where the risks are located".
- FT article
ECB sees the financial system, especially the financial markets, as becoming more vulnerable to an abrupt decline in market liquidity. -Press release
Tensions related to US sub-prime mortgages start to cause shortages of liquidity in money markets around the world.
The ECB provides liquidity to permit orderly functioning of the money market. From 9-14 August it injects €335 billion into the euro area banking system. Press release History of all ECB open market operations
The Bank of Canada, the Bank of England, the ECB, the Federal Reserve and the Swiss National Bank announce measures to address elevated pressures in short-term funding markets. The ECB’s Governing Council decides to take joint action with the Federal Reserve by offering US dollar funding to Eurosystem counterparties. The Eurosystem plans to conduct two US dollar liquidity-providing operations against ECB-eligible collateral, in connection with the US dollar Term Auction Facility.
The ECB introduces six-month longer-term refinancing operations to support the normalisation of the functioning of the euro money market.
G7 finance ministers and central bank governors reaffirm their commitment to protect the integrity of the international financial system.
In response to continued strains in short-term funding markets, central banks announce further coordinated actions to expand significantly the capacity to provide US dollar liquidity. The Federal Open Market Committee of the US’ Federal Reserve and the ECB’s Governing Council decide to double their temporary reciprocal currency arrangements (swap lines) from USD 120 billion to USD 240 billion. These larger facilities should allow expanding the provision of US dollar liquidity in the euro area.
The European Commission proposes to increase minimum protection for bank deposits to €100,000 to maintain the confidence of depositors in the financial safety net.
Commission page on the Deposit Guarantee Schemes
The G20 leaders meet in Washington to discuss efforts to strengthen economic growth and to lay the foundation for reform so as to avert similar crises in the future.
The G20 leaders, meeting in Pittsburgh, review progress in tackling the economic crisis and agree to improve international economic cooperation.
EU finance ministers agree to create three new European authorities to supervise banking, insurance and securities markets: the European Banking Authority; the European Insurance and Occupation Pensions Authority; the European Securities and Markets Authority.
The ECB’s Governing Council decides to discontinue the temporary swap lines with the US Federal Reserve System on 1 February 2010. These lines, established in October 2008 to counter pressures in global funding markets, are no longer needed as the financial markets are functioning better.
The decision is taken in agreement with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank.
The ECB’s Governing Council reacts positively to the Greek government’s additional fiscal consolidation measures and comments that very swift implementation of these measures is needed.
Greece officially requests financial support from the euro area countries and the IMF.
Joint statement by the European Commission, the ECB and the Presidency of the Eurogroup on Greece
The euro area countries and the IMF agree on a €110bn loan package to Greece.
EU Commission web page on the agreement
European Financial Stability Facility (EFSF) is established
Statement by the Eurogroup
The Committee of European Banking Supervisors publishes the results of the banking stress tests.
Q&Aon the stress tests
Teams from the ECB, the European Commission and the IMF in Athens for the first quarterly review of the Greek government’s economic programme state that “the overall assessment is that the programme has made a strong start. However, important challenges and risks remain”.
The Irish government requests financial support from the EU and euro area countries. EU finance ministers concur with the Commission and the ECB that providing assistance to Ireland is warranted to safeguard financial stability in the EU and in the euro area.
Statement by Eurogroup and ECOFIN Ministers.
Following Ireland’s request for financial assistance from the EU, EU finance ministers agree on a joint EU-IMF financial assistance package, on the basis of a programme negotiated with the Irish authorities by the European Commission and the IMF.
Commission web page on the agreement
In response to the financial crisis, three new European authorities are set up: the European Banking Authority in London, the European Securities and Markets Authority in Paris and the European Insurance and Occupational Pensions Authority in Frankfurt. They supervise the financial activities of banks, markets, insurance companies and pension funds, respectively.
Statement by Commissioner Barnier
G20 finance ministers and central bank governors, meeting in Paris, agree on a two-step process and a set of indicators to focus policy action on persistently large macroeconomic imbalances.
The pact establishes stronger economic policy coordination for competitiveness and convergence, and represents a strong political commitment by European heads of government.
Conclusions of the euro area leaders.
Statement by the Eurogroup and ECOFIN Ministers
Text of the memorandum
The ECB’s Financial Stability Review identifies five key risks to the stability of the euro area financial system and provides a comprehensive assessment of the capacity of the financial system to absorb adverse disturbances.
Financial Stability Review
After ratification by the euro area countries, the EFSF becomes operational. It has an effective lending capacity of €440 billion through guarantee commitments from those 17 countries.
G20 finance ministers and central bank governors reaffirm their commitment to take all necessary actions to preserve the stability of banking systems and financial markets.
Euro area finance ministers agree on the basis for a second aid package, including stronger on-site monitoring by the European Commission, the creation of an escrow account, private sector debt restructuring and an additional retroactive lowering of the interest rates of the Greek Loan Facility. Governments of Member States whose central banks currently hold Greek government bonds in their investment portfolio commit to pass on to Greece an amount equal to any future income accruing to their national central bank stemming from this portfolio until 2020.
In the margins of the European Council, 25 European leaders sign the Treaty on Stability, Coordination and Governance, also known as the “fiscal compact”, as agreed on 9 December 2011. It aims to strengthen fiscal discipline and introduce stricter surveillance within the euro area, notably by establishing a “balanced budget rule”.
European Council conclusions
Open market operations
The ECB’s Governing Council acknowledges the activation of the buy-back scheme for Greece and decides that marketable debt instruments issued or fully guaranteed by Greece will be again accepted as collateral in Eurosystem credit operations, without applying the minimum credit rating threshold for collateral eligibility, until further notice.
The Cypriot government requests financial aid from the euro area members and the IMF in order to tackle the distress in the country’s banking sector and the macroeconomic imbalances. Eurogroup ministers invite representatives from the Commission, in cooperation with the ECB, IMF and the country’s authorities, to formulate a programme and take the actions necessary to preserve financial stability, taking into account the spillover effects from sovereign market turbulence and the difficult external environment.
Statement by the Eurogroup
The Spanish government requests financial assistance from the euro area members. Eurogroup ministers agree with the Commission’s assessment that assistance is justified to ensure the euro area’s financial stability.
Statement by the Eurogroup
Staff teams from the European Commission, the ECB and the IMF visited Dublin from 3-12 July for the seventh review of country’s economic programme. The report concludes that despite a challenging environment the implementation of the programme remains strong. The report also notes that the authorities are making progress with reforms to restore the Irish financial sector to health but that growth prospects for 2012 and 2013 remain modest. With continuing high unemployment, job creation and generating growth remain a critical priority.
Euro area finance ministers agree unanimously to provide Spain with financial assistance in order to support the recapitalisation of the country’s financial institutions. The ministers agree that the funds will be channelled to the financial institutions in question by the Spanish government agent, the Fund for Orderly Bank Restructuring.
Statement by the Eurogroup