A guide to euro financial jargon

In: Uncategorized

19 Jan 2012

This is a box for my recent Fund Strategy cover story. I will paste the final box tomorrow.

Bazooka. Popular term for a large sum of money used to underpin a bail-out of troubled national debt.

European Banking Authority (EBA). The EU’s London-based banking regulator. Responsible for such tasks at the stress testing of EU banks. It was established in January 2011 as a successor to the Committee of European Banking Supervisors (CEBS).

European Financial Stability Facility (EFSF). A special purpose vehicle set up in May 2010 to provide financial assistance to troubled eurozone member states.

Haircut. A loss taken by an investor on the face value of an asset that is being used as a collateral. For example, if a bank had to accept €80m for a bond with a face value of €100m it would have taken a 20% haircut. Investors try desperately to avoid taking haircuts wherever possible. Politicians, on the other hands, often argue that investors should accept losses on investments that go wrong.

Longer-term refinancing operations (LTRO). The provision of relatively long-term credit, as opposed to the normal weekly funding, by central banks to commercial banks. Such refinancing operations are normally carried out as a form of auctions. The three year term for huge ECB refunding operation in December was unusually long.

Monetary financing. Direct central bank funding of government debt. It is against the ECB’s rules to perform this task but it has attempted to circumvent them by lending to commercial banks instead.

Stress testing. A statistical test designed to assess how banks are likely to fare under a specified set of adverse conditions. Can be carried out by banks themselves or by regulators.