Only half the expected amounts to be paid back on loans
San Francisco, CA -- (SBWIRE) -- 03/04/2013 -- According to sources, banks across Europe will now only be expected to pay half of what they had previously been slotted to pay following the crisis loans that they took from the European Central Bank over a year ago. The move suggests that the euro zone financial system is still dependent upon cheap ECB funds.
The ECB loaned banks over 1 trillion euros in 3-year, ultra-cheap lending operations within December of 2011 and February 2012. It was said that the move was to “avoid a major, major credit crunch”.
A bumper repayment of nearly 140 billion euros of the first LTRO in January suggested parts of the financial system were returning to a previous health. However, the ECB stated last week that of the 800 banks that took money in the second half of the two rounds of 3-year loans, 356 had opted to repay a combined 61.1 billion at the first opportunity.
A Reuters poll estimated that banks would return over 130 billion euros of the second round of cheap loans. The result was that banks are still dependent on the ECB.
"The lower-than-expected repayment shows that banks in the eurozone periphery, and possibly also in the core, still want to hold on to the LTRO funds as market access remains constrained and fears over future market turmoil persist," said Tobias Blattner, economist at Daiwa Securities.
For the ECB, however, this should be positive as it is likely to reduce the upward pressure on money market rates and the downward pressure on inflation through the exchange rate." Two-year Eonia rates fell after Friday's announcement and Euribor futures rose - both signals of lower rate expectations. German bond yields also fell across the curve.
Reuters calculations show an excess of willingness to liquidity across the euro region has dropped since the first opportunity to pay the loans. The excess measure has dipped from 600 billion to 500 billion before the first repayment.
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