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ECB Has to Provide Liquidity to Banks, BPI Chief Says

The European Central Bank has to provide liquidity to the region’s banking system as some lenders are struggling to fund themselves, the chief executive officer of Banco BPI SA said.

“The ECB can’t stop providing liquidity to the system at a time that Europe is dysfunctional,” Fernando Ulrich said at a conference in Lisbon today. “If the system doesn’t work, the ECB is playing the middleman, something that in normal conditions the banks would do themselves.” BPI is Portugal’s fifth-biggest bank.

The country’s banks haven’t been able to place benchmark-sized bonds valued at 1 billion euros ($1.3 billion) on the market for more for at least six months, while they have about 40 billion euros in borrowings from the ECB, equivalent to about 7 percent of banking assets.

Policy makers including Portugal’s ECB Governing Council member Carlos Costa have expressed concern about some lenders’ reliance on central bank liquidity, which has already forced the ECB to delay its exit from non-standard measures to give banks time to patch up their balance sheets.

On the ECB buying government bonds, Banco BPI’s Ulrich said Europe could probably “surpass the situation without having to go there.”

Ulrich also said he “hopes” Portugal doesn’t need to ask for external aid, though “it’s a European issue, not entirely in our hands.” Ireland in November became the second euro country after Greece to seek a bailout, increasing speculation that other countries in Europe may follow.

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