Weak European nations are counting on the European Central Bank to help bail them out... but how financially strong is the ECB itself?
Given that it only has 66 billion euros of capital and reserves according to the Telegraph, not very.
It had already backed Greek banks to the tune of 88.4 billion euros as of the end of April, plus has bought 25 billion euros of Greek government bonds. Moreover, its financial commitments likely increased substantially in May, though by how much isn't clear.
So the ECB's Greek exposure is bigger, by some margin, than its own capital and reserves.
So far the ECB has yet to make a call for more capital to support its lending operations to distressed European financial systems. But if a run on banks, as witnessed recently in Greece, is repeated in countries such as Italy, Portugal and Spain because confidence in institutions wavers further, this situation will change as a full scale banking bail out gathers.
Now the ECB is backed by Eurozone nations, but when the calls for more capital come, it'll be pretty clear to Europeans that the ECB has been playing with other people's money.
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Full story at http://feedproxy.google.com/~r/businessinsider/~3/8jHO_YwYlJg/the-ecb-is-insolvent-2010-6
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