The ECB's decision to provide unlimited 3-year liquidity to banks should give them the funds they need to finance economic growth and purchase sovereign debt, helping to lower euro zone bond yields, ECB governing council member Christian Noyer said this evening.
In an interview with French news channel LCI, Mr Noyer also said that today’s EU summit deal to move toward greater fiscal union in Europe should help to underpin a recovery in confidence.
"What we decided yesterday in the governing council of the ECB was to use our bazooka ... so that banks can continue to do their job, continue to provide credit to the economy and ... buy sovereign debt," Mr Noyer said.
"That is the role of insurance companies, banks and financial investors. We will give them all the liquidity they need so they can do this."
Mr Noyer said today's "historic" agreement by European countries to set automatic sanctions on budget rule breaks - agreed by all 27 EU members except Britain - should help stabilise investor sentiment toward the euro zone.
"I am convinced that this should be well received and that should allow interest rates to fall," he said.
Mr Noyer said a decision by rating agency Moody's to downgrade the debt of France's three largest banks, citing deteriorating liquidity, was "bizarre" in the light of the ECB decision.
He also noted that French banks' profits in the first nine months of the year were more than enough to cover the capital requirements of €7.3 billion highlighted by the European Banking Authority yesterday.
Ratings agency Moody's cited the worsening eurozone debt crisis for the downgrade.
After a review, Moody's knocked down the overall strength rating and debt ratings of BNP Paribas, Societe Generale and Credit Agricole.
The agency noted in three statements that the downgrades were prompted by deteriorating liquidity and funding conditions and "the fragile operating environment for European banks".
It took action today, the day after regulators said European banks have to raise about €115 billion — more than expected — to meet a new standard meant to inoculate the lenders against market turmoil.
European banks have billions of euros of risky government bonds on their books, and investors are increasingly concerned the lenders won't be able weather all of the expected losses on those loans.
Agencies