ECB to lend €492bn to banks at lowest rates
LONDON THE European Central Bank will lend nearly half a trillion euros to banks at rock-bottom rates next week through its threeyear refinancing operation, despite signs institutions already have adequate liquidity, Reuters polls showed on Monday.
A poll of more than 60 economists showed a median expectation that the ECB will allot 492 billion euros ($647.6 billion) at 1 percent in the second of two 3-year loans on February 29. Forecasts, taken in the past few days, ranged from 200 billion to 1 trillion euros.
A separate poll of 29 money market traders said the ECB would lend slightly less, 470 billion euros, with forecasts ranging from 200 billion to 750 billion euros. Both consensus figures are roughly the size of the first such operation, which totalled 489 billion, last December.
The money from that first operation has eased pressure on eurozone government debt markets and helped to lower government borrowing costs in countries such as Spain and Italy.
Analysts and traders both generally agreed that the take-up of funds this month would be more of an insurance policy and to take advantage of an offer that is too good to be true.
Indeed, only 15 of 63 analysts polled said banks would bid because they need the cash.
“It is a one-time opportunity and a free lunch,” said a money market trader, summing up a view expressed in several of the past few such polls.
Of the 63 analysts polled, 27 said banks would bid as a safety buffer even though there was adequate liquidity in the system, while 25 said that the main reason they expected bids was because the offer was too good to refuse.
ECB President Mario Draghi urged banks to make use of the offer after the February policy meeting, saying there was “no stigma on using the threeyear facility.” “The banks that needed the cash urgently already used the first LTRO.
Stigma is an issue for some banks, but this is such a good deal that many banks will take substantial amounts anyway,” said Frank Oland Hansen at Danske Bank.
It has also helped to trigger a stock market rally, with European shares hitting a seven-month high on Monday, also boosted by signs Greece would secure a long-awaited bailout deal.
Since the December operation, the ECB also has relaxed requirements for what institutions can use as collateral for the loans. But of the minority of 18 analysts who predicted a take-up of more than 500 billion euros, only a third of these came from banks headquartered in the euro zone.
A survey by UBS of 317 of its clients published on Friday predicted banks would take up 629 billion euros, with one of its economists expecting the ECB to dish out 1.5 trillion euros. UBS itself expects 492 billion.