The European Central Bank yesterday pumped in €489 billion ($640 bn) into the Continent’s banking system, in hope the much-needed liquidity could alleviate the region’s credit squeeze.
The loans which were given to 523 banks revealed the difficulty of borrowing from other banks and money markets in the coming year, and will be lent at the average of its benchmark interest rate which currently stands at 1 percent.
According to a Bloomberg survey, it is the most in a single operation and more than median estimates of €293 billion.
The ECB hopes the limit-free, ultra-cheap and ultra-long funding will bolster confidence in banks, ease the threat of a credit crunch and encourage banks to buy Italian and Spanish government debt, thereby pushing down the countries' borrowing costs.
“The perceived stigma attached to central bank borrowing has not prevented euro-zone banks from making extensive use of the ECB’s offer,” Martin van Vliet, an economist at ING Group told Bloomberg.
Carl B. Weinberg, chief economist at the consulting firm High Frequency Economics and a professed bear on the European outlook, told the New York Times he was stunned by the size of the monetary operation, saying it suggested that Europe’s central bank had “shown a path toward averting catastrophic collapse in Europe.”
On Monday, ECB Vice-President Vitor Constancio said he expected a significant demand for the loans as banks face “very high refinancing needs early next year.”
In an address to the European Parliament this week, ECB President Mario Draghi said some €230 billion of bank bonds mature in the first quarter of 2012 alone.
Banks represent about 80 percent of lending to the euro area. The banking channel is curcial to the supply of credit, Draghi said.