European Central Bank President Christine Lagarde.
Horacio Villalobos/Corbis via Getty Images
The European Central Bank won’t furnish short-term liquidity to struggling energy firms, ECB President Christine Lagarde said Friday.
In her view, financing utility companies should fall to the duties of individual EU governments.
Meanwhile, the ECB is in talks with bank execs over potential defaults and financial risks from the energy crisis.
The European Central Bank won’t facilitate short-term cash injections for energy firms facing a financing crunch, according to ECB President Christine Lagarde.
Escalating power prices have sent collateral requirements soaring for energy companies that hedge their sales in futures markets. Estimates for these margin calls top $1 trillion. But individual European Union governments must step in, not the ECB, Lagarde said.
“In this current, very volatile environment, it’s important that fiscal measures be put in place to provide liquidity to solvent energy-market participants, in particular utility firms,” she said at a new conference Friday in Prague. “As far as the ECB is concerned, and the national central banks of the Euro-system, of course we stand ready to provide liquidity to banks, not to energy utility firms.”
The ECB, Lagarde added, can assist lenders positioned as clearing members for utility companies, but wouldn’t go as far as providing direct financing.
Energy companies should seek stability from governments, and policymakers should implement targeted measures to prop up firms, she explained.
At the same time, the central bank is holding talks with financial institutions over their readiness for a potential wave of defaults in the energy market, according to Bloomberg.
The report noted that the ECB wrote to lenders in August, ordering them to assess how dwindling natural gas supplies would impact their businesses. Responses to the inquiry are due this month, sources told Bloomberg.
Russia’s cuts to natural gas supplies to Europe since its invasion of Ukraine have raised fears of a “Lehman Brothers” moment for the energy sector, as producers struggle with skyrocketing prices.
Bloomberg reported Thursday the the UK Treasury and Bank of England launched the Energy Markets Financing Scheme — a liquidity fund with 40 billion pound sterling to give traders support amid massive margin calls.