ECB to offer banks billions in cheap loans

The European Central Bank is expected to pump half a trillion euros in ultra-cheap, three-year loans into the eurozone’s troubled financial system today.
In the second such operation to fight the eurozone crisis, banks can stock up on as much of the cheap funding as they like – a ploy the ECB unveiled late last year to dampen tensions on eurozone bond markets.
ECB President Mario Draghi said after the first of the operations that “a major credit crunch” had been averted.
Banks used much of the €489bn they borrowed last year to cover maturing debt.
Mr Draghi has urged them to lend out the funds they tap at today’s operation to households and businesses, helping strengthen economic growth.
Financial markets are monitoring the progress of the longer-term refinancing operations.
The LTROs are unleashing a wall of money just as the US Federal Reserve and the Bank of England have with their quantitative easing (QE) programmes.
The ECB operations differ from QE in that they provide liquidity against guarantees instead of intervening directly in bond markets.
They achieve a similar result while allaying the concerns of some policymakers – led by the Germans – about funding governments.
ECB policymakers in Germany and beyond are nonetheless worried that the central bank risks storing up problems for the future by releasing the wave of cash through the LTROs.
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