The Paradox of LTROs

Even though the long-term refinancing operations (LTROs) of the ECB should realistically stoke the fires of inflation (as the liquidity in the financial system is increased), banks and other related financial services firms who accepted the cheap fiat money being offered by the ECB have, more often than not, chosen to hoard their cash (and many times deposit it again with the reserve bank even though deposit rates are low) in the form of reserves rather than loaning it to the real economy. This may be understandable considering that regulators will be hoping to infer a minimum of 9% capital adequacy ratio from the balance sheet of the banks by June 2012. From this writing, I may safely conclude that the REGULATORS are helping the BANKS achieve the core CAPITAL ratio requirement. So the gold bulls may have to reduce their momentum considerably as we approach H1 2012. This world is interesting...