No wonder the European Central Bank wants to stop banks exploiting its generous rules to gain access to liquidity: it has been taken to the cleaners by none other than Macquarie Bank, which managed to get its hands on close to $A700 million in a loan deal that’s forced the ECB to change its rules.

Macquarie Bank knows no shame. To do the deal they had to breach the spirit of the ECB’s liquidity support. Macquarie is not a European bank, it is a foreign bank domiciled in Australia and regulated here.

The European Central bank prides itself on being hard-edged, tough, masters of inflation and beholden to nobody. Well the lads at Macquarie Bank have just driven a large lorry through that reputation.

According to the current edition of The Economist, Macquarie, which boasts of having billions of dollars in spare capital, and liquid funds, has managed to get an ECB loan meant for troubled European banks.

The magazine says Macquarie, “was able to secure an ECB loan through a euro-area affiliate, putting up as a security backed by Australian car loans.”

Market reports earlier last month said Macquarie had managed to get 455 million euros from the ECB via an affiliate by putting up as security, a security backed by Australian car loans (a form of what’s called an asset backed security).

The affiliate was in Ireland and the money came cheap.

What Macquarie seems to have done is to pioneer, along with the struggling Nationwide building Society of the UK, a devious strategy to get access to the ECB’s funding support by setting up an Irish savings arm. That’s what Nationwide has done.

Nationwide, being a UK domiciled and regulated group, should be accessing the Bank of England Support mechanism, and Macquarie should really be doing short or year long repos with the RBA involved asset backed commercial paper or securitised mortgages.

Just image the consternation if it had become known that the Macquarie bankers had gone to the Reserve bank and issued a security backed by car loans to get a loan.

In fact that’s the reason why the Macquarie Bankers played the ECB for suckers because the Reserve Bank doesn’t accept securities backed by car loans: some high grade asset backed commercial paper, not issued by Macquarie or an affiliate, and residential mortgage securities, though again, not issued by Macquarie (or the borrowing bank).

It was done quietly, through an Irish affiliate so as to minimise publicity at the time. It only generated publicity when the ECB started talking about having to change the rules because banks were “gaming” the support system’s rules. That’s a nice way of saying “rorting”: something Macquarie has a track record in with its listed and unlisted investment satellites.

It does raise the question why Macquarie Bank had to raise money through this subterfuge, and whether our lead regulator, APRA, has asked why.