The European Central Bank announced a further extension of its policy of providing unlimited liquidity to eurozone banks on Thursday, saying it would include 12-month loans this month and 13-month loans from December that will bridge two crucial year-end periods when banks are keen to show strong financial figures. It also unveiled a €40 billion programme to buy so-called covered bonds – ultra safe investments issued by banks.
In Berlin, where the ECB was meeting for one of its twice-yearly gatherings outside its home city of Frankfurt, Mr Trichet confirmed interest rate cuts were likely in coming months by warning again of “intensified downside risks” to economic growth. He also dropped previous references to monetary policy remaining “accommodative”, or supporting of growth. Economists have penciled in ECB interest rate cuts for November or December.
The reintroduction of 12-month loans means the ECB has the same weapons in place as in the depths of the recession that followed the collapse of Lehman Brothers in late 2008. But Mr Trichet insisted the bank could not act as a substitute for actions by governments. He reiterated calls for banks “to do all that is necessary” to shore up their balance sheets, taking advantage of government support measures or via Europe’s new bail-out fund, the European Financial Stability Facility. However, he refused to speculate on the total amount of additional capital required by banks.
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