Banks have borrowed 489 billion euros on Wednesday from the ECB, the first offer of funds for three years. Accessing funding more than expected increased the optimism that they can avoid a credit crunch, according to Reuters. Also, the money could be used for the acquisition of Italian and Spanish bonds. In total, 523 banks have borrowed funds from the European Central Bank, and final demand has far exceeded expectations of 310 billion euros from analysts polled by Reuters.
The euro rose to its peak of the last days against the dollar, while stock prices rose. Three-year loans is the latest attempt by the ECB to solve problems of the euro area. European Bank is hoping that the limitless financing, very cheap and for a long term will have a wide range of beneficial effects from the strengthening of confidence in banks, to reducing the danger of a credit crunch and possible purchase of bonds from Spain and Italy by financial institutions. Instead of a fixed interest rate, three-year loans were offered at the average interest rate of ECB for the next three years. Currently, the monetary policy interest rate is at record low 1%. For some banks, funds could be up to 3 percentage points cheaper than they would get on the financial markets.
In the three-year program, the banks could refinance loans taken from ECB in October on the shorter period and may return the money after one year if they wish. Another factor that supported the demand is high dependence on banks for funds from the ECB. In the financial stability report, released Monday, the ECB has warned that this dependence may be difficult to treat. Euro area banks have increased almost four times the loans from the ECB starting in June, to 150 billion euros, while banks in Spain and Italy attract over 100 billion euros each.
