The ECB is at it too

They are all at it; the Fed, the Bank of England and the ECB. All of them are using the asset side of their balance sheet to swap their high quality paper for rubbish owned by the commercial banks.

The chart above tracks changes in the balance sheet of the ECB. The green line - long term refinancing operations picks up the commercial bank assets the ECB has picked up since the credit crisis began.


Nevertheless, the recent crisis hasn't stretched the ECB too much. Since August last year, the ECB have only used a further 8 percent of its assets in long term refinancing operations. The ECB always had about 12 percent of its assets taken up by these types of operations.

This might, in part, explain why the ECB is less willing to cut interest rates as the Fed has done since August. The crisis in Europe is more localized and the ECB is more able to help out cash-strapped banks without a desperate series of rate cuts.