ECB's Balance Sheet Now Far Bigger Than Fed's, More Levered Than Lehman

... today's Bloodmberg chart of the day shows, the ECB's balance sheet is not only far greater than the Fed, at $3.2 trillion compared to $2.9 trillion for Ben Bernanke, but at 30x leverage, has the same risk as Lehman did at its peak. However, one major distinction between the Fed and the ECB is that while the Fed continues to be shrouded in almost impenetrable secrecy on an absolute basis, it is transparent as a wet t-shirt competition during Spring Break at Panama City Beach compared to the ECB. From Bloomberg: "Without information on the quality of assets on the ECB’s balance sheet or how far it’s willing to allow leverage to increase, investors may doubt the bank’s ability to prop up the financial system, and demand higher yields to buy some countries’ bonds, he said. "Sovereign spreads could rise again if investors become uncomfortable with ECB leverage without a fully detailed rescue package,” said Tyce. “The ECB is providing liquidity and confidence to the banking system, yet all the while its own leverage and balance sheet size is hitting new highs. It seems likely that the market will begin to watch the rising leverage with interest and growing concern."
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DCFusor said:

Well, the US might be insolvent, but an entity such as the fed that can print can't be.

And despite all this, the Euro is up, gold is up, the market is up today, bigtime.

The stuff on ZH may be predictive long term, but don't drink the kool aid for short terms, you'll get killed out there.

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ancona said:

The ECB cant print new cash, but they appear to be prestidigitating paper from somewhere for all those bond purchases. Where the hell does all of that cash come from?

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ancona said:

I just read an interesting and scary article over on ZH, detailing the three trillion dollar interconnectedness between insolvent European banks and their American counterparts. We should all be worried about this revelation.

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PMBug said:

Reggie Middleton (boombustblog) has been warning about these issues for while now. Math doesn't lie.

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ancona said:

.....And it's going to come tumbling down. It really is simply a matter of time. When retail investors pull their cash out of the ponzi, and they are unable to gather up enough collateral to replace it fast enough, that will be the beginning of the end. It will start in Europe and spread like wildfire, as the banks find it impossible to bring in enough cash to collateralize their ponzi "investments" they hold on such tenuous margin.

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Following a relatively tiny two-day rally in the Euro the ECB blows its horn with a statement Credit Crunch Averted
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As for the idea a "credit crunch has been averted", please consider the Wall Street Journal report for January 13 that says ECB Overnight Deposits Again Hit Record High
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European banks aren't lending now, nor will they lend any time soon as discussed in German Economy Contracts in 4th Quarter; Spain's Industrial Output Plunges 7%; UK Trade Deficit Widens; European Banks Wisely Hoard Cash

Skyrocketing ECB Balance Sheet

The reason for debt rally is not that a credit crunch has been avoided, but rather, the ECB has become the lender of only resort, bloating its balance sheet to record levels.
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The Federal Reserve pushed its balance sheet beyond $3 trillion for the first time this week while undertaking open-ended purchases of Treasuries and mortgage-backed securities to combat 7.8 percent unemployment.

The Fed’s total assets climbed by $48 billion in the past week to $3.01 trillion as of Jan. 23, according to a release from the central bank today in Washington. Holdings of Treasuries climbed by $7.8 billion while mortgage-backed securities in the Fed portfolio rose by $35.6 billion.
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