Hey, ECB: Know your limits

By James Ledbetter

You remember the old line about the role of the Federal Reserve being to take the punch bowl away as soon as the party starts getting good? Well, the European Central Bank takes a different view: if you’ve had a little trouble with liquidity lately, don’t worry, there’s an open bar.

The ECB announced Monday it would make “unlimited” funds available at below-market rates to any European bank that might require them, in order to ease the unpleasant effects of the global credit crunch. This move, it is hoped, would make money cheaper for banks to lend to each other, which they’ve been reluctant to do because, as Peter Eavis pointed out last week, private-sector banks have all too clear an idea which ones among them might have a little liquid problem.

The Associated Press labels the ECB move “unusual”; the Wall Street Journal quotes an economist from Commerzbank who calls it “extraordinary.” Which it surely is: how can any bank guarantee an “unlimited” amount of credit? Leave it to the Brits, though, to quash this outbreak of Continental glee; the BBC news site story closes with this gem of understatement:

But some analysts say that until the banks reveal the true scale of their potential losses, the central banks will be unable to do much to ease the credit crunch.

Quite. As Eliot might say: Hurry up, please, it’s time.