FRANKFURT (MNI) – Reports that the European Central Bank is
preparing new liquidity measures to help Irish banks “are just rumors,”
ECB Executive Board member Juergen Stark said in an interview with
German daily Frankfurter Allgemeine Zeitung, to be published Wednesday.

“This is the responsibility of the Irish state and not of the ECB,”
Stark asserted.

According to weekend reports in the Wall Street Journal and the
Financial Times, a new facility may be introduced to replace the use of
so-called Emergency Liquidity Assistance (ELA).

While initially aimed at Irish banks, the ECB would make the
facility open to other Eurozone banks as part of the long-awaited
measures to wean so-called “addicted banks” off of the ECB’s emergency
liquidity operations, according to reports.

Stark, the ECB’s chief economist said that there has been “a clear
improvement of conditions in the money markets.” Nevertheless, some
banks remain cut off from the interbank market, he noted.

There may be some options to speed up the process of ending bank
addiction to ECB liquidity, Stark said:

“There are various options to improve incentives, and there are
always two parameters here: quantity and price.” Furthermore, Stark
emphasized “that we only provide liquidity in our refinancing operations
to solvent banks against collateral.”

Pressed, however, about banks that are not solvent and may turn to
Emergency Liquidity Assistance precisely because they lack such
collateral, Stark replied, “that is a matter for national central banks
that can offer liquidity at their own risk and at their own expense at a
higher interest rate.”

Stark’s comments suggest that any potential new facility may charge
a premium for loans and that collateral requirements would be far
stricter than those under Ireland’s Emergency Liquidity Assistance. The
comments also suggest that the ECB will not pool losses from any risky
national bank lending, which would have the effect of transferring Irish
bank default risks to the Eurosystem.

Stark warned the Irish government not to solve the bank problems by
making bondholders pay. This could prompt a new wave of uncertainty in
Europe and other parts of the world, he reckoned.

Commenting on the sovereign debt crisis in the Eurozone, Stark told
the newspaper he believed that all Eurozone states will pay back their
debt.

–Frankfurt newsroom +49 69 72 01 42; Email: jtreeck@marketnews.com

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