Italian Bank Chief Explains Why Italian Banks Won't Buy Italian Sovereign Debt

Despite the potential for a "carry trade" -- using cheap ECB money to buy high-yielding sovereign debt -- this remains a huge problem.

From Citi's Steven Englander, commenting on the post-LTRO selloff:

One dose of cold water were comments from the Italian Bank Association that EBA rules won?t permit Italian banks to buy sovereign debt ? this is a complete reversal from reports yesterday that indicated that Italian bank collateral would benefit from government guarantees in going to the ECB and lead to incremental? Italian bank buying of sovereign debt.?

Everyone realizes this remains a problem: As long as the debt is viewed as a "risky" asset that counts against balance sheet health, banks are discouraged from buying it, even with the fat yield.

Remember, a key component in ending the US crisis was eliminating mark-to-market. Europe will have to do something like that, as awful as that sounds to people.

For more on the ramifications of today's action, see here.

Source: http://feedproxy.google.com/~r/clusterstock/~3/jcwVUZT8tLU/italian-bank-chief-explains-why-italian-banks-wont-buy-italian-sovereign-debt-2011-12

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