Siemans’ European Central Bank deposits raise eyebrows

20th September 2011

The move will aggravate fears about the safety of French banks but the ECB is also paying a higher rate which the paper says attracted Siemans. The unconventional move has been allowed because Siemans is one of a handful of large European firms with a banking license so it can deposit cash directly with the EU's central bank.

As the ECB buys eurozone bonds to help countries facing sovereign debt issues, it also aims to compensate by removing liquidity from the system. That is why it offers relative generous rates on week-long short term deposits. The process is known as sterilisation.

However, by mid morning, there was some confusion about the story with the Economic Times suggesting it had been denied. But that doesn't quite seem to be the case. By mid morning, it beceame clear that the bank concerned was Soc Gen.

The FT's financial blog FT Alphaville raises a quizzical eyebrow and suggests that the main paper got the story correct, listing supposed denials by Siemans, failures to deny by Siemans and sources elsewhere that seem to confirm the story. It then concludes: "It's debatable how much importance a corporate treasurer might put on earning a few more basis points, next to the fact of where the cash is placed. In which case the ECB's haven status stands out even more. There's nothing wrong (it's prudent even!) with Siemens doing this. We are of course just dying to know what Juergen Stark [the chief economist of the German Central Bank] thinks of a German engineering conglomerate helping prevent the ECB's bond-buying from becoming full-blown QE. Presumably he would not be impressed."

Bloomberg reports that the ECB says it has taken euro 152.5bn to offset its bond buying. But the ECB will not comment on the individual depositors. Meanwhile in another somewhat worrying development for French banks, the Wall Street Journal's Market Watch reports that Bank of China has also halted foreign currency swaps with Soc Gen, BNP Paribas, and Credit Agricole. However the WSJ suspects that China has a political agenda, effectively seeking more leverage in Europe and status as a ‘market economy' which would give its firms better access to European markets.

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