Solving the Collateral Crunch

The video explains how national central banks in Europe are lending to the IMF to address the euro crisis. It describes the current financial situation where private banks hold sovereign debt and finance it through central banks, which in turn borrow from the Eurosystem. The proposal is to shift this lending to the IMF, reducing interbank lending and addressing collateral shortages, which are key issues in the financial system.

Discuss how the current situation with private banks holding sovereign debt affects the euro crisis.

What are the potential consequences of eliminating interbank lending?