FRANKFURT (MNI) – The European Central Bank on Wednesday allotted
E489.19075 billion of 3-year loans to 523 Eurozone banks, according to
data released by the ECB.
Borrowing cost will be fixed at the average rate of the ECB’s main
refinancing rate over the life of the operation.
The demand was exceeded the consensus estimate of between E250
billion and E300 billion. European Central Bank Vice-President Vitor
Constancio had said Monday that he expected demand to “be significant.”
The stronger-than-expected demand for the three year loans should
ease fears of a credit crunch in the Eurozone. It will likely also raise
hopes that banks will take cheap central bank cash to buy much
higher-yielding government bonds, helping boost troubled Eurozone
peripheral debt markets.
Back in June 2009, when the ECB had allotted a previous record E442
bln in one year loans a large number of banks took advantage of this
profit opportunity.
ECB President Mario Draghi, however, cautioned earlier this week
that banks would “not necessarily” use funds they do take on for such
carry trades, though he said that is one possible use for them. Banks
will decide independently how to utilize funds, he reminded.
The loans will mature on January 29, 2015. Banks have the option to
repay any part of their loans starting January 30 2013. The ECB has
scheduled a second three-year operation for February 28.
Amid intense money market stress and fear of a credit crunch in the
Eurozone, the ECB earlier this month announced major new liquidity
measures that also included a looser collateral framework and a cut in
the minimum reserve ratio for banks from 2% to 1%.
“These measures should ensure that banks continue to have access to
stable funding, also at longer maturities, which gives them the
opportunity to continue lending to firms and households,” ECB President
Mario Draghi said Tuesday in the European Parliament.
–Frankfurt bureau. Tel: +49 69 720142: Email: frankfurt@marketnews.com
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