The European Central Bank advised Belgium not to backstop Dexia SA (DEXB)’s interbank deposits and to avoid providing guarantees on debt maturing within three months because it risks interfering with the central bank’s monetary policy.
The ECB also said the planned debt guarantees for Dexia may last as long as 20 years, which is inconsistent with European Union guidelines for national support measures to be temporary in nature, according to a statement published on the Frankfurt- based central bank’s website and dated Oct. 13. Belgium sought the ECB’s opinion on draft legislation that would grant state guarantees on Dexia loans.
Guarantees on interbank deposits “could entail substantial distortion in the various national segments of the euro-area money market by potentially increasing short-term debt issuance activity across member states,” the ECB said in the statement. “It could also affect the transmission of monetary policy decisions.”
Dexia obtained a pledge from the governments of France, Belgium and Luxembourg last week to backstop as much as 90 billion euros ($125 billion) of interbank and bond funding with maturities of as much as 10 years until 2021. The French-Belgian municipal lender, which is being broken up after concern over its European sovereign debt holdings caused short-term funding to evaporate, sought state guarantees to finance long-term assets including 95 billion euros of bonds with an average maturity of almost 13 years at the end of June.
Three years ago, Dexia received as much as 150 billion euros of debt guarantees from France, Belgium and Luxembourg, of which it tapped a maximum of about 96 billion euros in May 2009. Those backstops also included interbank deposits.
The bank stopped issuing government-backed debt in June 2010 and still had 29 billion euros outstanding yesterday, according to data from the Belgian central bank.
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