Eurozone bank borrows $500 mln from the ECB

18th August 2011, Comments 0 comments

A single eurozone bank has borrowed $500 million (350 million euros) from the European Central Bank for a week in what could be evidence of rising tensions on interbank lending markets.

An ECB one-week tender that settled Thursday and will mature on August 25 saw one bank ask for the amount in a resumption of a practice that had lain dormant since late February.

The last time that amount of dollars was lent was in a seven-day operation that saw $560 million borrowed by two banks on October 14, 2010.

The dollar lending programme was resumed in May 2010 when the Greek debt crisis opened a new chapter in the eurozone debt crisis, but following initial loans of nine billion dollars to seven banks, and five billion dollars a few weeks later, the amounts quickly tapered off.

European banking stocks plummeted Thursday, led downwards by French giant Societe Generale, after the US Federal Reserve reportedly expressed concerns over their liquidity.

Traders were in part reacting to a report in the Wall Street Journal that the Fed is concerned European banks might be forced to repatriate funds from US subsidiaries in the event of a liquidity shortage.

"Federal and state regulators, signalling their growing worry that Europe's debt crisis could spill into the US banking system, are intensifying their scrutiny of the US arms of Europe's biggest banks," the business daily said.

Analysts in Paris said the Wall Street Journal report had served as a wake up call for any traders who had forgotten previous warnings from the European Central Bank, which on August 6 said it was ready to provide extra liquidity.

"It has shone the spotlight on the very worrying declarations made recently by the ECB chairman, Jean-Claude Trichet, which investors had clearly missed," said Alexandre Baradez of Saxo Bank.

Trichet had said that the ECB was ready to step in if banks had cashflow problems, reactivating a six-month loan operation designed to underwrite those most exposed to the debts of the eurozone's weaker economies.

As to why SocGen should suffer worse than fellow European banks with trans-Atlantic ties, traders said the bank was still seen as weakened by shortcomings exposed in the Jerome Kerviel rogue trader scandal.

© 2011 AFP

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