ECB injects 489 bln euros into eurozone banks

21st December 2011, Comments 0 comments

The European Central Bank said Wednesday it injected a record 489.19 billion euros ($641 billion) into eurozone banks via its first-ever three-year refinancing operation.

The ECB said in a statement it fully allotted a total 489.19 billion euros in bids from 523 banks at rate of 1.0 percent.

That is higher than the previous record of 442 billion euros for a one-year auction in June 2009 and came in at the top end of analysts expectations for anywhere between 100-500 billion euros.

The ECB said that a substantial chunk -- 45.72 billion euros -- came from 123 banks shifting out of a 12-month operation allotted in October to the longer 36-month refi, the longest-ever maturity provided by the central bank.

Analysts welcomed the move.

"The very heavy take-up provides some encouragement that banks' liquidity needs are being amply met," said Jonathan Loynes, chief European economist at Capital Economics.

"The allocation was much bigger than anticipated. But while this might help to address recent signs of renewed tensions in credit markets and support bank lending, we remain sceptical of the idea that the operation will ease the sovereign debt crisis too," he said.

There has been much speculation that demand for the funding would be huge because governments are pressing banks to buy up large volumes of sovereign debt of the troubled eurozone countries.

However, banks in the troubled economies have generally been cutting their exposure to sovereign debt in recent months and would be reluctant to invest the ECB cash in what they continued to view as risky assets, the analyst argued.

But even if they did, "the amounts involved are not a substitute for the much bigger purchases, or guarantees, which markets have been hoping for from the ECB itself," Loynes said.

© 2011 AFP

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