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Fed vs ECB

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the_trat
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Fed vs ECB  Reply with quote  

Hi to all,

I have the impression that the fed is moving towards a system similar to the ECB one, I wanted to know your opinion on that matter.

Just wanted to see if I had a clear idea of the traditional differences between the Fed and the European Central Bank, and what it implies in the current situation :

-Fed traditionally had most of its assets as Securities (treasuries), by selling and buying them it regulated the money supply M1. See August 2007 on the table : http://www.econbrowser.com/archives/2008/10/the_federal_res.html. It also offered loans to banks with the discount rate, but in comparison it did not amount to much.

-While the ECB had a majority of loans to banks and very few securities.http://www.ecb.int/stats/money/aggregates/bsheets/html/outstanding_amounts_2007-03.en.html

Now If I am right, can someone explain to me why is that ? Why did the Fed have almost only securities as assets and the ECB almost only loans ?

Now if we have a look at the current situation, the fed has more loans than securities but the ECB kept its ratio...(about €4 of loans per €1 of securities ).

Then my question is what does that imply ? and is this really bad as many analysts say ? when you've seen that the ECB had almost only loans in good financial times....

Well waiting for your thoughts...

Thanks

Smile [/list][/list]
Post Mon May 04, 2009 2:20 pm
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the_trat
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Hi, Sorry for the two weeks delay. Smile

Well there is actually a very big difference, Treasury securities are loans made by the Treasury, i.e. the government of the USA, that were bought and sold by the Fed to regulate the money supply. No risks there, as treasuries are considered as risk free assets.

While the loans I was talking about are actually loans made by the Fed to inject liquidity into financial institutions, which implies a much higher level of risk, some of it may never be recovered with the current crisis.

Well as far as I understand, the ECB is a euro-zone equivalent of the Fed, but much more independent in practice as we do not have a strong central European government. It is kind of a Fed made of Feds from each € country...
Post Thu May 21, 2009 11:09 pm
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LottomagicZ4941
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Re: mod's note  Reply with quote  

quote:
Originally posted by coaster
There is a forum rule against resurrecting very old threads. I'm waiving that rule in this instance because the appended post adds new and relevant information, and the topic itself remains current. It would be better, though, if the poster would care to add some comments in addition to just posting a graphic.


Thanks for waiving the rule. Rules should never be more important then the reason for the rule. This is interesting stuff;) Still wrapping my head around it so nothing to productive to add beyond thanks for the info.

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Post Fri May 24, 2013 2:57 pm
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ranjith422
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Nice Post.
Thanks for info.

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