Coppola Comment

Here's a neat chart from JP Morgan (h/t @debtnerd) (larger version here ) What it says, essentially, is that although the total amount of Euro SME loans currently in issue looks sizeable, by the time you have removed all the loans that would be ineligible for securitisation and purchase by the ECB for one reason or another, there is not much left. Securitising and purchasing 10.3bn Euros worth of SME loans is not going to make a great deal of difference to the distressed periphery. So the idea must be that the presence of the ECB in the SME ABS market would spur loan issuance. To make a significant difference to credit conditions in the periphery and repair the broken monetary policy transmission mechanism, that loan issuance would have to be simply huge and concentrated in periphery countries. There are several problems with this, to my mind. Firstly,it makes a huge assumption about the scale of potential demand for credit in the periphery from creditworthy SMEs. Is d

As I noted in my previous post , business lending in the Eurozone is very poor - flat in the major core countries and falling in the periphery. The ECB's report on MFI lending to businesses and households for January 2014 confirms the fall in business lending volumes both on a monthly and a yearly basis: (For some reason the ECB doesn't include loans of 0.25 - 1 million euros in this table, but volumes of these loans are also falling. The full list can be found at the end of the ECB's document.) The ECB also reports that interest rates are rising for smaller loans and falling for larger ones. But as usual (I'm getting slightly tired of saying this), Eurozone aggregates don't tell the whole story. This chart shows the path of SME interest rates since the start of the Euro: (H/t @fwred ) According to this, EMU average interest rates are now falling on SME loans (see circled area). But the ECB says that average interest rates on new lendin

Ever since the financial crisis of 2007, there has been a prevalent belief that derivative financial products - swaps, options and the like - are a) useless and b) harmful. So, for example, in today's Guardian, Will Hutton castigates derivatives : Derivatives should rather be seen as economically purposeless constructs whose ease of manipulation in opaque markets makes the investment banks rich – while the rest of us take our chances. This is simply wrong. Derivatives, like all financial products, have real-world uses that benefit ordinary people and businesses. It is when they are MISUSED that the problems arise. And I would be the first to admit that in the last decade, misuse of derivatives has enriched a small minority beyond their wildest dreams and caused misery for millions. The latest scandal concerns a form of derivative use that is close to my heart. Retail customers - small and medium-size businesses (SMEs) - have been sold derivatives ostensibly to help them manag