ECB Governing Council members played down the urgency of a new lifeline for commercial banks one day after the central bank's president Draghi had opened the door to such a move should market interest rates continue to rise.
The ECB pumped more than €1 trillion in three-year LTROs [long-term refinanacing operations] into the eurozone's banking system nearly two years ago as a way to aid banks in meeting bond redemptions. Banks have been allowed to repay these loans since early this year. Their repayments, totalling just over €330 billion, along with indications that the US Federal Reserve would "taper" its bond purchases, have increased market interest rates and raised the prospect of a new long-term loan.
ECB President Mario Dragh i told parliamentarians in Brussels Monday that the central bank is "ready to use any instrument, including another LTRO if needed, to maintain the short-term money markets on the level that is warranted by our assessment of inflation in the medium term". Mr Draghi's colleague on the six-man Executive Board, Benoît Coeuré, however said Tuesday that while the bank would continue to monitor money markets, the bank hadn't discussed "any specific instruments" such as an LTRO. "We are not committed to a new round of LTRO [long-term refinancing operation]", ECB Vice President Vitor Constancio also said at an event in Madrid.
Smaller banks in struggling eurozone states remain locked out of the interbank market and reliant on the ECB for funds. Some bank executives say privately that a new round of long-term ECB loans is needed to stem funding problems once the current three-year loans near expiration. Several members of a group of bankers and experts advising the ECB recommended another longer-term loan be offered early next year.
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