Wednesday, December 21, 2011

Banks gorge on ECB loans, market cheer short-lived

Banks gobbled up nearly 490 billion euros in three-year cut-price loans from the European Central Bank on Wednesday, easing immediate fears of a credit crunch but leaving unresolved how much will flow to needy euro zone economies.

Following a string of failed attempts by euro zone leaders to thwart market attacks on the bloc's weaker members, hopes of crisis relief before the year-end had been pinned on a massive uptake of the ECB's ultra-long and ultra-cheap loans.

The near half a trillion euro take-up of ECB funds represented the most the bank has ever pumped into the financial system and exceeded almost all forecasts. A total of 523 banks borrowed with demand way above the 310 billion euros expected by traders polled by Reuters,

"The take-up was massive ... much higher than the expected 300 billion euros. Liquidity on the banking system has now increased considerably," said Annalisa Piazza at Newedge Strategy. Read More