BANKS INCREASED their intake of three-month European Central Bank loans yesterday, reversing a recent trend that has seen them cut their consumption and whittle back the amount of excess cash in money markets.
Banks took €23 billion in the ECB’s latest three-month liquidity operation compared to the €4.8 billion they took in the equivalent tender back in April, although that was before an injection of six-month funds.
The funds were offered at the ECB’s benchmark interest rate of 1 per cent. The 70 banks that took part were guaranteed to get the full amount they requested, a tactic the ECB introduced at the height of the financial crisis to ease banks’ funding fears.
The latest operation came after banks trimmed back their one-week ECB loans.
Analysts said the increased uptake of three-month cash reduced the risk of banks running short of funds.
“The operation was broadly neutral and consolidates the recent spate of good news, so the short-term outlook is fairly positive for market sentiment,” RBS economist Silvio Peruzzo said.
“This suggests that banks are not struggling to get liquidity and are in a slightly better state than before the stress tests.”
The amount of central bank liquidity in the euro-zone banking system remains historically high but has more than halved since banks paid back €442 billion of ECB one-year loans at the start of the month.
The ECB’s current promise to provide banks with unlimited liquidity runs until mid-October and until the end of September for 3-month lending. It has not said whether it could be extended beyond that. – (Reuters)
