London - Arabstoday
The number of financial institutions flocking to the European Central Bank’s three-year loans soared to 800 and borrowing rose to a record in an operation that may boost the euro-area economy. The Frankfurt-based ECB said it will lend banks €529.5 billion ($712.2 billion) for 1,092 days, topping the €489 billion handed out to 523 institutions in the first three-year operation in December. Economists predicted an allotment of €470 billion in Wednesday’s tender, according to the median of 28 estimates in a Bloomberg News survey. “The astonishing number this time is the number of banks participating, which signals that a lot more small banks looked for the money and it is likely they will pass it on to the economy,” said Laurent Fransolet, head of fixed income strategy at Barclays Capital in London. “So the impact may be bigger than with the first one.” Bond and equity markets have rallied since the ECB’s first three-year loan, suggesting banks are investing at least some of the money in higher yielding assets. That’s helped ease concern about a credit crunch and won governments time to agree on measures to contain the sovereign debt crisis. The risk is that banks become too reliant on ECB money and fail to take the steps needed to strengthen their balance sheets. Today’s loans are the biggest single refinancing operation in the ECB’s history and take total three-year lending above €1 trillion. The ECB lends banks as much as they want against eligible collateral. More than a third of the 2,267 financial institutions registered to borrow from the ECB took part. “Clearly there is no sign of stigma here,” said Michel Martinez, an economist at Societe Generale in Paris. Banks that shunned the first loans for reputational considerations may have concluded “it was an offer they couldn’t refuse after all,” said Martin van Vliet, an economist at ING Group in Amsterdam. The ECB’s move to encourage take-up by increasing the pool of collateral banks can use to obtain the funds also appears to have worked, he said. Before the December operation, the ECB reduced the rating threshold for certain asset-backed securities. This month, it said seven of the 17 national central banks in the euro area will also accept credit claims, which ECB President Mario Draghi estimated would increase the collateral pool by another €200 billion euros. The aim is to give small and medium-sized banks greater access to ECB cash.