The French government has just recently injected 10.5 billion euros into several large banks to “recapitalize” the credit markets.
Could someone please explain to me what this means?
Will this money be credited to the banks’ personal accounts at their own bank, at the Banque de France (French central bank), or at the European Central Bank (ECB)?
I know the ECB has a minimum reserve ratio of 2%. I couldn’t find one for the Banque de France.
Is this new capital a new monetary creation? Will these 10.5 billion euros be multiplied through the fractional reserve system and flood the French/European economy with new inflationnary money?
So if this money is placed at the ECB, with a 2% reserve, that means the French government has just injected half a trillion euros into the French economy (10 billion + 10 billion x 49 = 500 billion)?
Well, it just has opened the window for such an inflation, yes, that’s what it means.
What it does not mean is that the french economy has 500 billion more right now.
I means the french government is giving carte blanche to inflate that much by the banks to make loans. How much of that “money” is actually utilized and over what period is open.
The only details I have been able to dig out regard Dexia, a French-Belgian bank. It will be a capital increase that will issue new shares at a given value (around 10 Euro each if I remember correctly). These shares will be bought by Belgian and French authorities: France already has a 10% stake in the bank through CDC. Each State has pledged 3 billion Euros for the operation, with Luxembourg pledging an additional 376 million Euro. This money will come from both the governments themselves (ie the unwilling taxpayers) and State-run financial institutions.
Dexia was the second bank in Europe to be bailed out by the authorities and specialize in providing loans to “local” goverments.