Subprime and the Central Banks

By Michael Knox, Director of Strategy & Chief Economist at ABN AMRO Morgans

In recent days I have received a forest of phone calls asking me to explain what is meant by injections of liquidity by Central Banks. How does this relate to Subprime mortgages? Let us take the example of a US or European bank. This bank owns a subsidiary which invests in Subprime mortgages on behalf of clients. This is a reasonable practice for banks because owning such a subsidiary allows you to on-sell some of the Subprime mortgages that you have originated.