Wednesday, December 21, 2011

Banks take 489 billion euros in 3-year ECB loans

Europe's banks borrowed nearly 490 billion euros from the European Central Bank at its first-ever offer of three-year loans today, encouraging demand for the euro and stocks on hopes the funding will ease the two-year old debt crisis.

But the very heavy take-up of the ECB money also highlighted the scale of the pressures European banks are under and some of the initial gains in asset prices were quickly given back.

The ECB had indicated the ultra-cheap, long-term loans were designed to boost trust in banks, free up money markets and tempt banks to buy Italian and Spanish debt.

"Certainly this will help ease liquidity, as will last month's coordinated central bank action on dollar swaps, but it also highlights the gravity of the situation in the euro zone - so don't expect sustained euro gains," said Richard Driver, currency analyst for Caxton FX.

"The number (489 billion euros) beats the previous record of 442 billion euros (the ECB allotted) in June 2009," said Christian Schulz, senior economist at Berenberg Bank.

"It is highly unlikely now that banks in the euro zone will go bust because of liquidity shortage."