ECB payback as easy as ABC
The European Central Bank is breathing a sigh of relief as it managed to take back 442 billion euros in emergency loans lent to banks a year ago without blowing a hole in money markets.
Banks borrowed modestly from two extra lending operations the ECB offered to sweeten the payment deadline, rolling over just over half the one-year loans, or 243 billion, and letting 199 billion euros flow out of the financial system.
The ECB has been keen to get money markets back on a more normal footing and to avoid banks becoming hooked on central bank money, but was wary of shocking markets with a sudden liquidity shortage.
So far, so good. Although longer-dated interbank interest rates continued rising on Thursday to new 9-1/2 month highs, overnight rates were little changed and markets showed few signs of tension.
Analysts said it was a Goldilocks scenario all round.
“After today’s result the excess liquidity remains relatively abundant (over 100bn), and in the range that we had indicated as neither too high (which would have sent worrying signals on the health of European banks) nor too small (which would have put tremendous pressure on money market rates),” UniCredit analyst Luca Cazzulani said.
Still, it does not mean euro zone banks are ready to stand on their own feet just yet.
“That banks should opt to raise €111bn from the ECB at 1% when the 1-week market rate is 0.446% and there were €309bn of investable funds deposited at the ECB overnight attests to the acute lack of confidence in risk capital provisions of the banking system,” Tullett Prebon economist Lena Komileva warned.