Collateral damage

The European Central Bank faces an acute dilemma: on the one hand it needs to ensure that banks have access to adequate liquidity, but on the other it needs to prevent banks profiting unduly from central bank funding. Recent signs of banks undermining the ECB’s generous rules on collateral are worrying, and the ECB should address them promptly. What it cannot afford to do is cause a new storm in the markets.... [read full story]