This will be one of those “one picture is worth a thousand words” posts.
A quick preface:
During Congressional testimony, Ben Bernanke defended the Fed’s FX swap lines by saying that the ECB was “well-capitalized.” So instead of spending countless words explaining why that may not be quite so, we will merely show the bank’s total assets (net of LTRO 2) and its capital and reserves (link). The adjusted balance sheet is pro forma for today’s LTRO 2, which we noted earlier will add at least €311 billion in net assets to the ECB’s balance sheet, and potentially much more. Assuming the minimum, it means the ECB’s balance sheet will now hit €3 trillion. The capital backing these assets is €82 billion across the entire Eurosystem. In other words, the ECB’s leverage is 36.6x. This according to Ben Bernanke is “well-capitalized.”