ECB to provide easy funds for banks

4th August 2011, Comments 0 comments

The European Central Bank said Thursday it will mount a fresh six-month loan operation, providing pressed banks with easier funding, due to tensions in eurozone money markets.

The ECB had previously terminated such six-month operations, which were one of the exceptional measures taken during the global financial crisis to ensure that the banking system had enough liquidity.

"The governing council today decided to conduct a liquidity providing supplementary longer term refinancing operation (LTRO) with a maturity of approximately six months," the ECB said after it kept its main lending rate unchanged at 1.50 percent.

The eurozone debt crisis has put Italy and Spain under huge pressure in recent weeks after Greece, Ireland and Portugal had to be bailed out by the EU and International Monetary Fund.

The banks, who hold large amounts of government bonds issued by these weaker eurozone countries, have in turn come under pressure, finding it more difficult and increasingly costly to raise fresh funds from the markets.

Some analysts have even talked of an approaching credit crunch and all eyes were on the ECB Thursday in the hope it would take some measures to ease the strain for the eurozone and its banks.

Many had hoped that the ECB would resume buying government bonds until a new EU crisis fund can take over the task of taming a crisis which EU Commission head Jose Manuel Barroso said Thursday had spread beyond the bloc's peripheral countries.

© 2011 AFP

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