ECB set to lend US$161b to banks
By Geir Moulson |
July 1, 2010, Thursday
|
Print Edition
Print Edition
THE European Central Bank said yesterday it will lend 131.9 billion euros (US$161 billion) to banks for three months - a smaller-than-expected sum that suggests banks' cash needs are easing despite lingering worries about the eurozone debt crisis.
The loan came as a larger batch of 12-month loans is due to expire and sent a hopeful signal on the health of the banking sector and money markets.
The ECB said 171 institutions subscribed to the three-month refinancing operation, at a flat rate of 1 percent. It didn't identify them or their nationalities.
Analysts have pointed to the operation as an opportunity for banks to roll over loans from the record 442 billion euro auction carried out last June if needed. Those loans expire today.
That unusual 12-month operation - to which 1,121 institutions subscribed - was part of the ECB's effort to keep cash moving in the markets and stem further fallout from the financial crisis.
The euro - which has been battered in recent months by worries about eurozone debt - rose after the ECB's announcement, trading as high as US$1.2304. Earlier yesterday, it had gone as low as US$1.2167.
Commerzbank economist Michael Schubert in Frankfurt had predicted that the latest operation would total between 150 million euros and 200 million euros.
"People feared that there is a lot of funding stress within the interbank market, and a low volume of calls means that this fear to a certain degree unfounded," Schubert said. "So that is the good news."
He said there was a risk that money market rates could rise in the coming weeks as excess liquidity dips - "but it's not certain that this will happen because, of course, banks can borrow from the ECB via the weekly tender operations."
Luca Cazzulani of UniCredit said "as a first reaction one should read very good news from this: It suggests liquidity problems may have been overstated."
He said there may be banks that face difficult access to funds but expect things to improve over the quarter - so they may have chosen to bid in weekly operations and keep rolling over the loans until funding gets easier.
Although there was no geographical breakdown of where the banks that bid were based, "investors will speculate a large portion came from Spain and Portugal," he wrote in a research note.
The loan came as a larger batch of 12-month loans is due to expire and sent a hopeful signal on the health of the banking sector and money markets.
The ECB said 171 institutions subscribed to the three-month refinancing operation, at a flat rate of 1 percent. It didn't identify them or their nationalities.
Analysts have pointed to the operation as an opportunity for banks to roll over loans from the record 442 billion euro auction carried out last June if needed. Those loans expire today.
That unusual 12-month operation - to which 1,121 institutions subscribed - was part of the ECB's effort to keep cash moving in the markets and stem further fallout from the financial crisis.
The euro - which has been battered in recent months by worries about eurozone debt - rose after the ECB's announcement, trading as high as US$1.2304. Earlier yesterday, it had gone as low as US$1.2167.
Commerzbank economist Michael Schubert in Frankfurt had predicted that the latest operation would total between 150 million euros and 200 million euros.
"People feared that there is a lot of funding stress within the interbank market, and a low volume of calls means that this fear to a certain degree unfounded," Schubert said. "So that is the good news."
He said there was a risk that money market rates could rise in the coming weeks as excess liquidity dips - "but it's not certain that this will happen because, of course, banks can borrow from the ECB via the weekly tender operations."
Luca Cazzulani of UniCredit said "as a first reaction one should read very good news from this: It suggests liquidity problems may have been overstated."
He said there may be banks that face difficult access to funds but expect things to improve over the quarter - so they may have chosen to bid in weekly operations and keep rolling over the loans until funding gets easier.
Although there was no geographical breakdown of where the banks that bid were based, "investors will speculate a large portion came from Spain and Portugal," he wrote in a research note.
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