ECB digs deep to help banks keep lending
Baku, December 10 (AZERTAC). The European Central Bank will offer 3-year loans for the first time to banks pummelled by the euro debt crisis and make it easier for them to borrow, seeking to persuade them to keep the credit taps open to businesses and consumers.
For over half a year the ECB has been anxiously observing a creeping credit squeeze take hold in the euro zone as banks have reacted to the bloc`s intensifying debt crisis and tougher regulation by scaling down lending.
The ECB`s new measures, announced on Thursday along with a second interest rate cut in as many months, was headlined by two 3-year loans. Such long-term lending goes way beyond the ECB`s current 1-year maximum funding offer, which was in turn an emergency response to the global financial crisis. The latest funding will come at an ultra-low rate that effectively tracks the ECB`s headline interest rate, now at 1.0 percent after Thursday`s cut. One feature likely to make the loans particularly attractive is that banks will be able to pay all or some of the money back after a year if they so wish, removing the risk that some may have seen it as a possible future burden. The ECB`s other main funding move was to slash the quality of the Asset Backed Securities - hard-to-value assets blamed for exacerbating the earlier global crisis - that it allows banks to swap for ECB funding. It will now accept ABS whose second best score from credit rating agencies is `single A`, a major change from the current requirement for two separate `triple A` ratings.
Individual euro zone central banks will also have the freedom to accept assets which they view as safe but which are not on the ECB`s main list of eligible assets. The move is likely to be of particular benefit for Irish and Greek banks, whose traditional swap assets have been annihilated by the sovereign debt crisis.
The ECB also made a number of smaller changes. It halved the amount banks have to park as reserves with it, and scrapped its once-a-month practice of taking deposits from banks overnight when its reserves cycle comes to an end.
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