Business

European Central Bank Lends Record $639 Billion to Banks

FRANKFURT, Germany (The Blaze/AP) — The European Central Bank (ECB) loaned a massive €489 billion ($639 billion) to hundreds of banks for an exceptionally long period of three years to shore up a financial system that is under pressure from the eurozone’s government debt crisis.

It was the biggest ECB infusion of credit into the banking system in the 13-year history of the shared euro currency.

Wednesday’s loans to 523 banks surpassed the €442 billion ($578 billion) in one-year loans from June, 2009, when the financial system was reeling from the collapse of U.S. investment bank Lehman Brothers.

The ECB is trying to make sure that banks have enough ready cash so they can keep on lending to businesses. Otherwise, a credit crunch could choke off growth and spread the debt crisis to the wider economy through the banks.

Markets rose modestly on the outsized amount of credit support, which was far higher than the €300 billion ($392 billion) expected, but the advance soon faded as the loans highlighted the problems facing Europe’s banks. The Stoxx 50 of leading European shares was down 0.2 percent while the euro was trading 0.4 percent lower at $1.3063.

“The good news is, the ECB’s efforts to increase liquidity are working,” said Jennifer Lee, an analyst at BMO Capital Markets. “The bad news is, high demand for the loans creates worries that banks are urgently in need of funds to boost liquidity.”

Helping the banks may be crucial in the year ahead, as many economists think the eurozone may be headed for recession. Slowing growth would make it even harder for the over-indebted governments that are at the heart of the eurozone’s crisis to get a handle on their debt burdens. A recession in Europe would lower tax receipts and make government debt burdens even harder to handle.

A default on debt payments by a country such as Italy or Spain could cause a new financial crisis and send the global economy into a slump.

While the loans support the banking system they do not address the deeper problem of too much government debt and the lack of a financial backstop big enough to assure markets that governments will be able to pay their debts.

Italy and Spain have been at the center of investor concerns in recent months as their borrowing costs have risen. Those two are considered big to bail out with the current eurozone bailout funds, which have some €500 billion ($654 billion) in financing. Some of that is already committed to bailouts of smaller Greece, Ireland and Portugal, which have all sought outside financial help after default fears drove their borrowing costs so high they could no longer refinance their debts as they came due. Italy has some euro1.9 trillion in outstanding debt.

The 37-month term of the loans permits the banks to stock up on money for a much longer period and reduces stress on their finances. Many banks have had trouble borrowing from other banks or by issuing bonds as they do in normal times. That is because lenders fear the banks may suffer losses from the crisis and not pay them back.

Of the €489 billion ($639 billion) loaned out, some 61 percent was rolled over by banks from other ECB credit offerings, meaning about €200 billion ($261 billion) represents new liquidity that wasn’t previously in the banking system, according to analysts at the Royal Bank of Scotland. One likely use for at least some of that fresh money is to pay off €230 billion ($301 billion) in bank bonds coming due in the first three months of 2012.

The concern has been that if banks cannot borrow to refinance those obligations they will find the money by cutting back on loans to businesses. Those loans enable businesses to operate day to day, expand their operations and hire people.

There was some speculation that the loans would help governments since banks could borrow money cheap from the ECB operation and buy higher-yielding government bonds.

But many analysts think it is unlikely they will increase their exposure to government bonds amid fears of default. Many banks have cut their holdings of debt from governments that are in financial trouble.

“We still believe it is difficult to reconcile a government desire for banks to continue buying debt with the need for banks to reduce risk exposure associated with government debt,” said Chris Walker, an analyst at UBS.

In making the loans, the ECB was playing its role of supplier of liquidity, or ready money to operate with, to banks. That is a typical job for central banks, especially in a crisis.

Under the terms of Wednesday’s loans, the banks will pay the average refinancing rate over the three years. The ECB reviews the rate each month and it will almost certainly change. Banks also have the flexibility of repaying the money after a year if their situation improves.

Still, the credit infusion only treats one of the symptoms of the debt crisis. It does not remove the reasons banks remain wary of lending to each other – especially, their thin levels of capital reserves against potential losses. And it doesn’t cut the large levels of debt carried by governments.

European officials have said banks need to raise €115 billion ($150 billion) in new capital – but finding that money is not an easy task in the current environment of fear. Investors are leery of putting more money into banks. It would be politically unpopular for governments to do it, and their finances are stressed as well.

The Associated Press contributed to this story.

Comments (25)

  • Tretka
    Posted on December 21, 2011 at 7:54pm

    This is some or all of our money for sure. Remember the Federal Bank here has loaned billions to them. And remember, they loaning on leverage collateral. That is why Europe will take us down.

    I will never understand why Lefties want to fashion after Europe. Half the Lefties think it is all about the environment anyway, so what am I saying?…of course I get it. It is to the point now that my view of anyone that would vote for a politician or a President that embraces lefty ideals, is not a person I would consider serious or trust in my life at all.

    Report Post » Tretka  
    • ginge
      Posted on December 22, 2011 at 8:12am

      Europe will soon consist of Germany and France.

      Do we trust Germany in light of their participation in 2 world wars aimed at at taking over Europe? They are requiring no skin for the bank loans while requiring lots of power over the borrower.Looks like a set up to me.The banks will get fat just like US banks. The economies will continue to fail. Just like the US.
      Meantime the considered Repubs are unable to make an articulate case of the wrongs Obama has done to our system.
      Boehner passed a bill with approval of Tea Party reps and assured them they could go home since Mcconnel would wrap it up in the Senate. Sounds like he tried to isolate Tea Party Reps again just like in the Super Committee . Thankfully the Tea Party guys cried foul. Now even the establishment Repubs are criticizing the House. Do you get the feeling that the establishment is part of the fix and unhappy to have the Tea Party guys around?

      Report Post »  
    • MetalPatriot
      Posted on December 23, 2011 at 10:21pm

      Yes to both of you. There’s such a small portion of us that see & believe what is happening. I’m trying to oust corruption in our home owner association. I’m not real popular, to say the least. Imagine what the few Representative in the House get. Unbelievable how much dishonesty & lack of integrity exist.

      Report Post » MetalPatriot  
  • vehoae
    Posted on December 21, 2011 at 6:02pm

    It just goes on and on and on. The financial institutions make bad loans to the public (for whatever reason, pick one). Then the financial institutions agree to become borrowers themselves, forcing other lenders to make bad loans to them (the financial institutions). This is why our economy — worldwide — can’t do anything other than collapse. The time is coming. Nobody wants it to happen in their own lifetime, but that’s life. Unfortunately, all these X, Y, and Z generation idiots screaming in the streets for handouts and redistribution of other peoples’ wealth have no perception of what they will be faced with when the time comes. Look at their reaction to business owners who’ve stood on the streets with them offering them jobs — the idiots spit on them, throw things at them, and scream obscenities at them.

    Most of the demonstrators have insufficient knowledge of non-revisionist history, and little to no common sense. That’s exactly what globalization strategists (i.e., bHo, Congress, the U.N., AGENDA-21, ICLEI, George Soros, Bill & Hillary Clinton, Barak & Michelle Obama and all their ilk and lackies, ect.) are depending upon. What does everyone think the residential agglomerations and star communities being built in leading countries (including the U.S.A.) are for, hmmm? Can you spell “fenced-in ghetto”?

    Lord, come quickly.

    Report Post »  
    • mamatango
      Posted on December 22, 2011 at 5:34am

      I think you would enjoy seeing this video! It’s a 3 part DVD series, and explains it all, by a man who was pastor to the elite. Everything he has said in the past 2 years has happened. He explains the economic hurricane coming, but if you watch it until the end, you will be smiling!

      https://www.youtube.com/watch?v=ZA4Pu7af58c

      Report Post »  
  • elosogrande
    Posted on December 21, 2011 at 5:25pm

    The ECB loaned the money, but whose money was it? I have a feeling that it was yours and mine.

    Report Post »  
  • pmjr-jones
    Posted on December 21, 2011 at 4:07pm

    i was right about the swiss bank acts. laundered back

    Report Post »  
  • A Conservatarian
    Posted on December 21, 2011 at 4:02pm

    I love it when they say they only loan 700 Billion. Well folks, over here in the US our fractional reserve requirement is 90%. It‘s larger over in Europe but lets say it’s 90% there, too. That means 639 Billion as a reserve requirement can be expanded 9 times over as it is lended out by these banks playing the fractional reserve bank. So, not only can the ECB lend out 639 Bill Euro, those banks will turn around and lend out up to 9 times that amount of money which happens to be 5 Trillions, 751 Billion. And that’s what Keynesian Economics gets you, easily inflatable money from a population stupid enough to insure such idiocy and societies constantly sitting on the brink of destruction. Coordinated inflation is super duper stuff! It’s one of the largest robberies of recorded history going down, right before our faces, yet again!

    Report Post » A Conservatarian  
  • GilbertAcct
    Posted on December 21, 2011 at 3:52pm

    We will end up bailing out Europe under the guise of the IMF.

    Report Post »  
    • isobamamadd
      Posted on December 21, 2011 at 6:11pm

      Globalist Bankers Can’t print enough money to save the system. It will Collapse,

      Report Post »  
  • Ghandi was a Republican
    Posted on December 21, 2011 at 3:49pm

    Notice how this EU logo looks eerily reminiscent of the Islamic crescent? whatuuup wit dat?

    Report Post » Ghandi was a Republican  
  • Texas_Tip
    Posted on December 21, 2011 at 3:22pm

    Looks like Draghi wanted a Merry Christmas after all.
    Obviously not enough, but that’ll work for a start, With the ESFS, ESF and an IMF contribution (that would be a 18.3% US btw) supposedly being implemented next year. That’s a lotta pizza dough.

    Now that loan I gave RBS in bonds @ 85.65 w/ 8.15%YTM is easily covered.
    Always opportunity out there.
    Thanks Euro_Santa.

    Report Post »  
  • watashbuddyfriend
    Posted on December 21, 2011 at 3:04pm

    Now, I ask, where did The European Central Bank (ECB) get the massive €489 billion ($639 billion) to loan?

    Report Post »  
  • ssbstspd
    Posted on December 21, 2011 at 2:40pm

    SO when is the Euro finally going to colapse ?
    I can’t wait, that will be the time to cash in on failed socialism.
    Can anyone say , Short Euro ?

    Report Post » ssbstspd  
  • TeaPartyPatriot
    Posted on December 21, 2011 at 1:52pm

    “Early today 523 banks requested an unprecedented €489 billion ($640 billion) in super-cheap funding from the European Central Bank.”

    …a pittance compared to the nearly EIGHT TRILLION DOLLARS that reckless, irresponsible, out-of-control, treasonous bailout bernanke provide fro FREE to his BIG-FINANCE/BIG-BANK pals.

    If you were offered FREE money by some reckless, irresponsible, out-of-control BIG GOVERNMENT bureaucrat, wouldn’t you take it?

    Report Post » TeaPartyPatriot  
    • progressiveslayer
      Posted on December 21, 2011 at 2:05pm

      They’re just rearranging the chairs on the deck of the titanic,Greece will default first and then………the dominoes will continue to fall.All of this senseless printing of money by helicopter Ben on our side of the pond will do is create hyperinflation,tick tock………………………….

      Report Post » progressiveslayer  
  • BrerRabbit
    Posted on December 21, 2011 at 1:46pm

    Read ‘Lords of Finance’. They couldn’t fix it then and they will not now. A day of reckoning is coming. Soups lines for all !

    Report Post »  
    • smithclar3nc3
      Posted on December 21, 2011 at 1:55pm

      Don’t you just love how the IMF just creates currency out of thin air much like our federal reserve. The paper is so worthless it doesn’t qualify as a fiat currency.

      Report Post »  
  • momrules
    Posted on December 21, 2011 at 1:44pm

    Didn’t we just do this in America? How well has it worked out for us.

    Report Post »  
  • thekuligs
    Posted on December 21, 2011 at 1:43pm

    They might as well have thrown the whole lot into a wishing well. It won’t save them.

    Report Post » thekuligs  
  • AxelPhantom
    Posted on December 21, 2011 at 1:33pm

    Parody. The US is destroying thier currency, EU is destroying thier currency. China and India are not (China has a different set of problems). Redistribution of wealth comes in many forms and lowering the value of your country’s currency is one way to bring you down in quality of living to make you more equal to the “have nots” and make your wages more in line with the likes of developing countries. Most people never see it coming as it is gradual.

    Report Post »  
  • lukerw
    Posted on December 21, 2011 at 1:13pm

    So… how much did the Federal Reserve… kick in?

    Report Post » lukerw  
  • sb36695
    Posted on December 21, 2011 at 1:11pm

    Kick the can…

    Report Post »  
  • Sam Brown
    Posted on December 21, 2011 at 1:08pm

    Europe gets their tarp, who will pick up the tab?

    Report Post »  

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