ECB lends €489bn in bid to ease euro crisis

Thu, Dec 22, 2011, 00:00

MORE THAN 500 banks across the EU have borrowed a record €489 billion from the European Central Bank (ECB) in the latest attempt to combat the financial crisis.

The ECB confirmed yesterday that 523 banks have taken out three-year loans totalling €489 billion from it in an exercise designed to inject cash into the EU’s faltering financial system and ease the euro zone debt crisis.

It is the largest amount lent to European banks by the Frankfurt-based ECB since it handed out €442 billion in one-year loans in June 2009.

Irish banks are thought to have joined their European counterparts to bid for a share of the money when the ECB was auctioning the loans.

The State’s own Central Bank would not comment on the likely level of borrowing yesterday.

However, the Department of Finance said it did expect Irish banks to borrow money in the ECB’s auction. By the end of October, the Irish banks covered by the Government guarantee had borrowed €68.7 billion from the ECB. Further details of their borrowing from Frankfurt will be released next month.

Since the financial crisis struck in 2008, Irish banks have found it difficult to raise cash on international money markets, where they obtained much of the funds used to provide credit to their customers in the past. The ECB loans announced yesterday would give them a secure source of cash.

Many finance institutions in the EU are facing the same difficulties as the Irish banks. The ECB is flooding the market with cheap money to counteract this and prevent a credit crunch.

The ECB also hopes that the banks will use this extra cash to lend money to Italy and Spain by buying their bonds, thus easing the euro zone debt crisis.

French president Nicolas Sarkozy suggested banks could use the loans to buy more government debt.

However, doubts emerged last night that the exercise had succeeded. The euro fell against the dollar and share prices began to slip last night as market watchers questioned whether the loans would be enough to tackle the crisis.