European banks rush to snap up cheap ECB 3-year loans

Wednesday, 21 December 2011 02:58

Financial services providers in Europe have been rushing to take advantage of loans offered by the European Central Bank (ECB).

It launched the three-year offer today (December 21st 2011) and banks borrowed 489 billion euros (£375 billion), well ahead of the 310 billion euros expected.

Leaders hope that the banks will go on to buy sovereign bonds from struggling countries such as Italy, thereby helping Europe out of the debt crisis.

However, some sources suggest that the money will simply be used to make balance sheets of financial services providers look healthier.

It is the first time the ECB has offered three-year loans, but the impact on the eurozone remains to be seen.

Jonathon Loynes, chief European economist at Capital Economics, told BBC News the higher-than-expected take-up is encouraging.

"But while this might help to address recent signs of renewed tensions in credit markets and support bank lending, we remain sceptical of the idea that the operation will ease the sovereign debt crisis," he added.

James Nixon from Societe Generale pointed out that the money is still short of covering all next year's financing for banks.

After news that the ECB's loans had exceeded forecasts, the euro climbed to a seven-day high against the dollar, hitting 0.1 per cent stronger at $1.3093 this morning in New York.

Sterling also extended gains versus the dollar as investors perceived the riskier currencies to be strongest.

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