June 5, 2012 / 12:11 PM / 5 years ago

MONEY MARKETS-Use of ECB funding jumps as Spain feels pain

 * Use of ECB weekly funding twice more than expected
 * Jump pinned on Spain woes, Greek banks regaining access
 * Adds additional pressure on ECB to provide more support

 (Adds detail, background, quotes)	
 By Marc Jones	
 FRANKFURT, June 5 (Reuters) - Banks' use of ECB weekly
funding more than doubled on Tuesday, as Spain's troubles left
its institutions increasingly dependent on central bank support
and four Greek banks returned to mainstream ECB operations
following a two week ban. 	
 The ECB's weekly offering of limit-free 7-day funding saw a
total of 96 banks take 119.4 billion euros, the highest since
the second of its two 3-year injections at the end of February
and more than double the 51.2 billion euros taken a week ago.
 Money market traders, who had expected only around 50
billion euros to be borrowed, put the surprise
leap down to a combination of Spain's woes, recently blacklisted
Greek banks coming back into ECB operations and lower recent
uptake of three-month ECB funding.	
 "Part of it is certainly going to be Spanish banks
considering what is happening there and after their margins were
increased at (clear house) LCH," one London-based trader who
requested anonymity said.	
 It was also the first chance for the four Greek banks who
were kicked out of mainstream ECB operations last month
 to grab back cheap central bank funding. Their
exclusion had triggered a 30 billion drop in ECB lending.	
 The jump in demand for the weekly funding is likely to alarm
the ECB and add additional pressure for it to provide additional
support to increasingly dysfunctional parts of the euro zone
like Spain, when it meets on Wednesday.	
 It is expected to announce a lengthy extension to its
arrangement where banks get all the funding they request, but
many economists would like it to go further by offering more
ultra-cheap 3-year loans and lowering its collateral standards
to make it easier for banks to get ECB funding.	
 "We expect them (ECB) to extend unlimited liquidity at least
until the end of the year and it is certainly possible that they
do another LTRO," the London-based trader said.	
 The ECB's 1 trillion euro ($1.25 trillion) tidal wave of
3-year funding has already helped halve interbank lending rates
 this year. The benefits are not being felt in
troubled corners of the euro zone, however, where most banks
have lost all access to regular funding markets.	
 Euro zone bank-to-bank lending rates hit fresh two-year lows
again shortly before the latest ECB injection, weighed down by
the growing belief it will have to cut interest rates and keep
its liquidity taps open to full to keep the euro together.	
 Extending a near-vertical six-month drop, three-month
Euribor rates, traditionally the main gauge of
unsecured interbank euro lending, inched down to 0.663 percent
from 0.664 percent.	
 Six-month Euribor rates also hit new two-year
lows, dropping to 0.940 percent from 0.941 percent. One-year
rates fell to 1.223 percent from 1.224 percent.	
 Shorter-term rates were more mixed. One week rates
 remained at 0.318 percent while overnight rates
 fixed at 0.332 percent on Monday, down from 0.337
 Dollar-priced three-month bank-to-bank Euribor lending rates
 , were also steady, staying at 0.970
percent. Overnight rates dropped to 0.313 percent
from 0.317 percent.	
 The sharp fall in euro-priced interbank rates over the last
half a year has brought benchmark euro-priced three-month rates
to within touching distance of the euro-era low of 0.634 percent
hit in early 2010.	
 The 0.25 percent the ECB offers banks for overnight deposits
continues to act as a floor for money market rates as banks know
they can get that level of interest no matter what. Some
analysts expect the ECB to cut the deposit rate as well later
this year.	
 High excess liquidity in the banking system - now at 769
billion euros according to Reuters calculations -
has led to heavy use of the ECB's overnight deposit facility,
where banks parked 781 billion euros overnight. In normal times
the amounts are minimal.	
 Euribor rates are fixed daily by the Banking Federation of 
the European Union (FBE) shortly after 0900 GMT.	
 * For a table of the latest Euribor fixings for terms of one
week to one year, double click on 	
 * For a table of the previous day's fixings of EONIA swap 
rates, which show market expectations for future overnight 
lending rates, double click on 	
 * For graphs of historic Euribor and EONIA swap rates, right
click on the links in angle brackets below, and select 'Related 
 1 week       	
 2 week       	
 3 week       	
 1 month      	
 2 month      	
 3 month      	
 4 month      	
 5 month      	
 6 month      	
 7 month      	
 8 month      	
 9 month      	
 10 month    	
 11 month    	
 1 year       	
($1 = 0.8003 euros)	
 (Reporting by Frankfurt newsroom)	

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