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Demand for ECB loans surpasses expectations

Wednesday, December 21, 2011 - 02:13

Dec. 21 - The European Central Bank's first-ever loan offer of 3-year funding proves to be a big hit with banks, which have borrowed a bigger than expected 489 billion euros. Joanna Partridge reports

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Higher than expected demand from European banks for the European Central Bank's first ever offer of three-year loans. 523 banks borrowed a combined sum of just over 489 billion euros from the ECB at a fixed rate - well above the 310 billion predicted by analysts in a Reuters poll. Stocks briefly rose on the news but the euro was very volatile. The ECB has said the economy could tip into recession if banks don't lend to businesses and private consumers and this is its latest attempt to ease problems in the euro zone. The demand from European lenders should provide hope that a credit crunch can be avoided and the money could be used to buy Italian and Spanish debt. Justin Urquhart Stewart from Seven Investment Management says that may not happen. SOUNDBITE: Justin Urquhart Stewart, Seven Investment Management, saying (English): "I think wise banks would actually take the decision to take the cautious route and actually take the money and been seen to making sure they are secure. It is fascinating to see how this has been offered, it's almost can be seen as being an offer of cash for trash, if banks are going out there to be encouraged to buy up other assets or even only just to shore themselves up. No, no, now is the time for banks to come out with a clear message that they are as strong as possible." But Charles Diebel from Lloyds Corporate Bank says while the ECB loan helps banks, it may not do much to help end the euro zone debt crisis. SOUNDBITE: Charles Diebel, Head of Market Strategy at Lloyds Corporate Bank, saying (English): "It doesn't solve the fact that, you know, you have a long-term to fiscal union and all of the haggling and the political issues that go with that and that's the real long-term story." The ECB operation comes at a time of concern about the European banking sector. Just a day earlier, ratings agency Fitch downgraded Italy's biggest bank Unicredit. it also threatened cuts on seven other Italian banks and several Spanish and French lenders citing fundamental challenges facing banks, particularly in Europe. The hope now is that the strong take up of the ECB's unprecedented loan offer will help give banks more room to manoeuvre, bolstering confidence - at least in the short term. Joanna Partridge, Reuters

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Demand for ECB loans surpasses expectations

Wednesday, December 21, 2011 - 02:13