The European Central Bank (ECB) has made ?446 billion in low-interest loans to banks in the second round of a massive credit infusion that has been credited with easing the eurozone debt crisis.
The offer of credit for three years was taken up by 800 banks today. The uptake was modestly higher than the?413 billion handed out to 523 banks at a first offering on December 21. Banks used some of the money from the first round of loans to buy government bonds.
That lowered borrowing costs for hard-pressed governments struggling to maintain large amounts of debt, and eased fears of a market meltdown from Europe’s troubles with too much government debt.
The ECB loans, given against collateral such as bonds or other securities, cost banks the average of the ECB’s benchmark rate over the life of the loan, which is currently 1%.
Analysts had expected the amount of new loans to come in just under that for the first offering.
The first offer of three-year, low-interest credit to banks on December 21 has been credited with easing fears of a financial meltdown in the eurozone due to lack of confidence with governments with too much debt and too little growth.
The cash infusion removed fears that banks in Europe might collapse because of inability to pay off bonds or other debt coming due. Following the first credit infusion, bank funding markets frozen late last year began to thaw, as some banks have been able to issue new debt.
More crucially for eurozone governments, some banks in financially-pressed countries such as Italy and Spain appear to have used the cheap money to buy government bonds. That has brought down borrowing costs, especially on shorter-term bonds, and taken some of the pressure off governments such as Spain and Italy.
