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29 February 2012

WSJ: ECB allots €529.5 billion in long-term refinancing operation


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The European Central Bank handed out €529.5 billion in cheap, three-year loans to 800 lenders, in the central bank's latest effort to arrest a financial crisis now entering its third year.


The loans were on top of the €489.2 billion of similar loans the ECB dispensed to 523 banks in late December. The ECB's goal is to help struggling banks pay off maturing debts and to coax them to lend to strained governments and customers. The take-up of this week's loans was roughly consistent with what bankers, investors and analysts had expected.

While the ECB's loan programme is widely credited with averting a possible financial disaster, some bankers and other experts fear that lenders might grow addicted to the central-bank funds. "It's not clear what the exit strategy or long-term consequences are", said Peter Sands, chief executive of giant British bank Standard Chartered PLC, which didn't borrow funds. "What happens in three years when it needs to be refinanced?" For some smaller banks, reliance on the ECB loans "is merely stalling recognition of fundamental weaknesses", said Bridget Gandy, co-head of European financial institutions at Fitch Ratings.

Other analysts, however, say the cheap loans will help banks gradually repair their balance sheets. The actual amount of new liquidity as a result of the ECB loans is less than meets the eye. That is because billions of short- and medium-term ECB loans mature this week, so the net new amount of liquidity is about €310 billion. The total net amount of new liquidity as a result of the two batches of loans is about €520 billion.

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© Wall Street Journal


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