The ECB wants to calm the markets before a key deadline
June 29, 2010 – 2:10 pmThe European Central Bank (ECB) has sought to reassure financial markets extremely tight Tuesday, ensuring that the banking system would not be disrupted by the arrival this week due to almost 500 billion euro emergency loan.
Financial institutions in the euro area will thus have to repay the ECB on Thursday of 442 billion euros.This is the first installment of three operations to one year available to commercial banks at the height of the crisis.
Banks in the euro area, "will pay all" even though "there are some banks that are in worse situation that may be suffered," he said Tuesday, Christian Noyer, governor of the Banque de France and member of the Board of Governors the ECB.
Asked on Europe 1, he added: "We will ensure that there is no problem and it all goes well.
The two groups following a year expire in September and December.
To lighten the repayment burden of banks, the ECB has submitted additional borrowing facilities.So Wednesday, the eve of the deadline, the institution chaired by Jean-Claude Trichet will offer banks unlimited funds for three months.
This should prevent any funding problems in the banking system in the euro area as a whole. The markets fear that the weakest banks have difficulties in moving from a security situation that was to follow for 12 months at the ECB in a position to borrow more short term.
THE EURO AND THE STOCK MARKET DOWN
This concern helped to plunge the euro to a record low against the Swiss franc on Tuesday. The single currency has touched 1.3197 Swiss franc, according to Reuters data. The euro also fell against the yen, another safe-haven.It was a moment worth 107.33 yen, its lowest level since late 2001.
The Euribor three-month, an important indicator for loans in the euro area rose to 0.761%, its highest level since last September. It was at 0.754% on Monday.
The European equity markets ended down sharply. In Paris the CAC 40 index lost more than 4%.The index Stoxx European banking ended down 4.5%.
In recent months, the country banks to face a crisis of sovereign debt have been increasingly dependent on the ECB for funding while other banks were reluctant to lend them money.
But the ECB is determined to unravel its one-year loans, as part of its policy of returning to a normal monetary policy.
Sixteen of the central bank has no plans to provide new one-year loans to banks to take over loans expiring this week, said Ewald Nowotny, a member of its Board of Governors.He was interrogated about an article in the Financial Times reporting that Spanish banks questioned this decision and wished that the ECB has more new loans in the longer term.
"The ECB has opened the exit strategy long term and we stand by it.At the same time, special measures have been taken, but the exit strategy is valid long-term, "said the central banker.
The Spanish Minister of Economy Elena Salgado asked the ECB to be "aware of the needs of the Spanish financial system" without going so far as to ask the ECB to continue its one-year loans.
The total supply of liquidity in the banking system in the euro area is expected to exceed 900 billion euros – a first – before the return of Thursday, which suggests that the money market will have no problem to handle disbursements .
"There are a lot of cash available to fill the gap, and there are a lot of money in deposits" of the ECB, said Simon Maughan, banking analyst at MF Global in the United Kingdom.
RISK OF STRONG DEMAND FOR THREE MONTHS
Threat may be more important for markets, said Andrew Lim, an analyst at Matrix Securities in London: the risk that demand for funds to three months is much higher than expected.Analysts polled by Reuters expect that banks borrow 210 billion in three months, which would be a higher high.
Insofar as the three-month Euribor rate is significantly lower than 1% at which the ECB will lend her money, a very high demand during this operation will be a signal of concern.
This will tend to indicate that banks have lost access to interbank funding are more numerous than expected.
A sign that the banks are to store funds, the ECB has received a mixed reception for its deposits in a week, an operation designed to absorb the liquidity created by the emergency purchases of government bonds by the ECB.
The banks have deposited 31.9 billion euros despite the virtually risk-free rate of 0.54% offered by the ECB. It was hoped that it would be presented 55 billion.
Compounding the uncertainty that European governments will begin in late July to announce the results of stress tests which have affected the banks.
So far, the ECB has pledged to banks to lend as much as they wish until mid-October.
These tensions are also reflected in the bond market where the yield spreads between bonds issued by the peripheral countries of the euro area and the German securities reference widening.
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