ECB provides US$712b in credit to banks
Source: Agencies |
March 1, 2012, Thursday
|
Print Edition
Print Edition
THE European Central Bank yesterday handed out 529.5 billion euros (US$712 billion) in low-interest loans to banks in the second round of a massive credit infusion that has helped ease the eurozone debt crisis.
The volume of loans was slightly higher than the 489 billion euros handed out to 523 banks at the first offering on December 21. This time 800 banks took the money after ECB head Mario Draghi assured that there was "no stigma" associated with tapping the offering.
The ECB loans, given against collateral such as bonds or other securities, cost banks the average of the ECB's benchmark rate over the life of the loan. It's 1 percent now.
Analysts had expected slightly less uptake than for the first offering.
The first round of loans back in December had helped relieve the pressure on hard-pressed governments such as Spain and Italy, which had been struggling to maintain large amounts of debt. Banks used the ECB loans to buy up government debt they previously wouldn't have touched because of the debt's high yield - the level of interest a government would have to pay on its bonds and an indicator of risk. The added demand for the debt helped lower the yields and thereby calmed fears of a looming market meltdown.
The burst of cash also removed fears that a European bank might collapse because it couldn't pay off bonds or other debt coming due. Following the first credit infusion, bank funding markets that had been frozen began to thaw, as some banks were able to borrow by issuing bonds.
More crucially for eurozone governments, some banks in financially pressed countries also appear to have used the cheap money to buy government bonds.
Bank demand lifted bond prices and brought down bond yields, since yields and prices move in opposite directions. That cut borrowing costs on shorter-term bonds.
The volume of loans was slightly higher than the 489 billion euros handed out to 523 banks at the first offering on December 21. This time 800 banks took the money after ECB head Mario Draghi assured that there was "no stigma" associated with tapping the offering.
The ECB loans, given against collateral such as bonds or other securities, cost banks the average of the ECB's benchmark rate over the life of the loan. It's 1 percent now.
Analysts had expected slightly less uptake than for the first offering.
The first round of loans back in December had helped relieve the pressure on hard-pressed governments such as Spain and Italy, which had been struggling to maintain large amounts of debt. Banks used the ECB loans to buy up government debt they previously wouldn't have touched because of the debt's high yield - the level of interest a government would have to pay on its bonds and an indicator of risk. The added demand for the debt helped lower the yields and thereby calmed fears of a looming market meltdown.
The burst of cash also removed fears that a European bank might collapse because it couldn't pay off bonds or other debt coming due. Following the first credit infusion, bank funding markets that had been frozen began to thaw, as some banks were able to borrow by issuing bonds.
More crucially for eurozone governments, some banks in financially pressed countries also appear to have used the cheap money to buy government bonds.
Bank demand lifted bond prices and brought down bond yields, since yields and prices move in opposite directions. That cut borrowing costs on shorter-term bonds.
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