Relief as European Central Bank's EUR 442bn Support Line for Banks Ends without Panic

By Sean O'Grady | The Independent (London, England), July 1, 2010 | Go to article overview
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Relief as European Central Bank's EUR 442bn Support Line for Banks Ends without Panic


Sean O'Grady, The Independent (London, England)


Markets reacted calmly to the withdrawal of the largest single measure of official support to the banking system in human history.

The European Central Bank's historic offer of a total of 442bn (362bn) of loans at 1 per cent to the eurozone's stressed banks at the height of the crisis last year protected the financial system from meltdown. Now the extraordinary one-year scheme is being wound up, and investors were relived that the banks collectively have apparently only sought around 131bn of replacement funding via a new three-month facility from the ECB.

The figures suggest that institutions have been able to raise funds in the money markets and from depositors more easily than feared, and may also reflect generally shrunken balance sheets - lower lending levels meaning less funding requirements.

There is much evidence to suggest that the banks have been restricting lending to the most creditworthy of customers, while the demand for loans and other forms of credit from the private sector is much diminished, reflecting a widespread desire to pay off debt and deleverage balance sheets. New regulatory moves and the generally uncertain climate around sovereign debt have also pushed banks into bolstering their reserves of capital and liquidity.

The president of the European Central Bank, Jean-Claude Trichet, said that he was confident liquidity in the eurozone banking system is being handled smoothly.

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