A central bank can also make bankruptcy

We discerned them as fathers Fouettard.

They make face of saviors henceforth. It say little that the picture of the central banks is changing. Last week, they "injected some liquidities", according to the dedicated expression, by hundreds of billions of dollars. Better, the American federal reserve Bank saved the AIG bankruptcy, the biggest company of insurances of the planet, while assigning him a line of credit of 85 billions of dollars. Such of the deus ex plotted, the Fed, but also the European central Bank, they would not know any limit to their power exorbitant to "create the currency ex nihilo" ?

There is an illusion that deserves to be dissipated. The reality handles it besides very well. In alarming it pandemonium that offers us the financial markets, one didn't notice sufficiently that the American federal government has just proceeded from facto to an increase of capital of the Fed. The Treasure announced Wednesday that it was going to emit 40 billions of dollars of good of treasury, in order to help this last to manage his/her/its balance" "better,  (sic). What pretty litotes to tell us that the institute of broadcast of the dollar had a need urgent to be recapitalis?¦! The operation occurred again the following day, to height of 60 billions of dollars, and in the same goal:  to avoid a situation of bankruptcy.

As all enterprise, financial or a central bank doesn't have a balance that must to be balanced. His/her/its fashion of working is fundamentally the same:  she/it receives the resources, that appear at his/her/its liability, what allows him to hire the actions, which appear to his/her/its asset. In the case of the Fed (but the diagram is identical for the ECB or the Bank of England), these resources are of two orders. On the one hand, his/her/its capital, that until was last week of about forty billions of dollars:  these are his/her/its clean funds, whose shareholders are the States and the federal government. On the other hand, the banknotes, the dollars detained by the public, American and foreign, and that represent a few more of 800 billions of dollars. A cut of 10 dollars constitutes, indeed, for his/her/its possessor a credence, non gainful, on the Fed. It is the equivalent of funds of loans for an enterprise or a normal bank.

It is from these funds, written down to his/her/its liability, that the Fed, like all his/her/its cons.urs, practises its profession. He/it consists in refinancing the American commercial banks. And in very particular situations, foreseen by a legislation going back up to the big depression of the years 1930 (Term Securities Lending Facility), of other actors. Of which the investment bank Bear Stearns in last March or the company of AIG insurances. These operations of refinancing - the famous "injections of liquidities"  - are retraced to the asset of the Fed:  it is about the titles of credences that this last purchases at the banks in return for the money that she/it provided to them. Their total adjoins 900 billions of dollars.

Even though the lines of exceptional guarantee, like the 29 billions of dollars granted directly to JPMorgan for the resumption of Bear Stearns or the 85 billions of dollars in favor of AIG, constitute interventions "out balance", the solidity of the Fed is some blunt. Of as much as this one has been brought to appear less stingy these last months on the quality of the collaterals, the titles that she/it accepts in return for the supply of liquidities. As explains it very well Willem Buiter, former member of the committee of monetary politics of the Bank of England (Can Central Banks Go Broke?), the central banks, all as a vulgar private establishment, practice the effect of lever intensely:  in the case of the Fed, the granted financings are twenty-two times more important than his/her/its clean funds.

On the other hand, the amount of the assets of the American central bank, and it is the same thing for the ECB, is ridiculously weak (900 billions of dollars) compared to those of the private banks. To her only, Citigroup mobilizes 2 188 billions of dollars (balance to December 31, 2007).