In November the EFSF started applying a modified strategy that used a cash buffer as an essential component. This strategy also included a short-term bill programme, which consisted of regular auctions of three month and six month bills. An improvement of the modified strategy was also, that the raised funds were not anymore related to a certain country; instead they were taken together and disbursed to the countries in need.
The advantage of this was, that the lending rate stayed the same for every country. For the remaining quarter of the EFSF plans to keep it current strategy consisting of issuing benchmark bond as well as a short-term bill program. Like before, it is expected that the main investors of EFSF bonds are institutions like bank, pension funds, central bank and asset managers from all around the world. To support euro area member state countries in financial difficulties, the EFSF has several instruments, which are also used by the ESM since its start in September When it was founded in , the EFSF originally was just allowed to issue bonds or other debt instruments within an economic adjustment programme to finance itself.
This was necessary to provide loans to countries in need. Combined with the. Bank recapitalisations usually concern small countries with a large financial sector problem.
The main goal of such a programme is to limit the effects of financial stress on the economy and other financial institutions within the euro zone. The EFSF was not allowed to make loans directly to the banks, instead it made sure that the government had enough money to recapitalise the financial institutions by borrowing money to the government at a acceptable interest rate.
As time is a factor during bank recapitalisations in terms of increasing speed of financing and reflecting the sectorial usage of the loan, the process of requesting and controlling has to be more simply.
The initial request for a bank recapitalisation programme has to be made by the government of the euro area member state to the chairman of the. Eurogroup, Jean-Claude Junker. Of course there are also conditions attached to this type of assistance. First of all, the shareholders of distressed financial institutions are enquired to provide additional capital, afterwards the national governments are expected to find a solution and only if those two steps fail, the EFSF would have intervened.
As the EFSF did just borrow the money to the government and not directly to the financial institutions, it was considered as state aid. Therefore it had to be conforming to the EU state aid rules. In the precautionary programme euro area member states who are not in any other financial support programme and whose economy is still healthy could apply for a credit line at the EFSF to prevent a crisis.
There are three different types of credit lines:. If a euro area member state would like to apply for a PCCL, its economic and financial situation has to be generally healthy. A PCCL can be a loan or a primary market purchase. The ECCL can be used for all euro area member states whose economic and financial situation is still healthy, but already shows temperate vulnerabilities, which exclude access to the PCCL.
This means that a holder of a PPC Partial Protection Certificate gets a concrete amount of credit protection, which is a certain percentage of the nominal value of the amount of the government bond. The duration is usually 1 year, but the credit line can be extended for 6 month twice. This reduces the risk of failed government bond auctions. The conditions of a primary market intervention are equal to those on of a macroeconomic adjustment programme or of a precautionary programme.
M S Marcus Stallechner Author. Add to cart. Table of Content: I. Abstract II. Conclusion V. Questions I. Figure 2 www. Figure3 www. Funding Strategy To provide financial support to euro area member states, the EFSF had to raise funds on the capital market. Combined with the increase of its lending capacity in competences, which were - Bank recapitalisations - Precautionary programmes - Primary market intervention - Secondary market intervention www.
Bank the EFSF also got new Bank recapitalisations usually concern small countries with a large financial sector problem. The initial request for a bank recapitalisation programme has to be made by the government of the euro area member state to the chairman of the Eurogroup, Jean-Claude Junker. Precautionary Programme In the precautionary programme euro area member states who are not in any other financial support programme and whose economy is still healthy could apply for a credit line at the EFSF to prevent a crisis.
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