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ECB Lends Euro-Area Banks Less Than Forecast for 12 Months

Traffic Passes The European Central Bank Headquarters
Demand for year-long loans from the European Central Bank was weaker than analysts forecast. Photographer: Hannelore Foerster/Bloomberg

Demand for year-long loans from the European Central Bank was weaker than analysts forecast.

Reviving a tool last used at the end of 2009 to ease money-market tensions, the Frankfurt-based ECB said today it will lend banks 56.9 billion euros ($79 billion) for 12 months, less than the median forecast of 70 billion euros in a Bloomberg News survey of 10 analysts. The ECB said 181 banks asked for the 371-day cash, which will be lent at the average of the benchmark interest rate -- currently 1.5 percent -- over the period of the loan. The ECB satisfies all bids against eligible collateral.

The ECB will also lend 91 banks 44.6 billion euros for three months tomorrow, when 85 billion euros in three-month loans mature. That’s less than the 50 billion euros predicted in the Bloomberg survey.

“The solid banks still have access to the interbank market, plus they shy away from ECB funding because of the stigma attached,” said Christoph Rieger, head of fixed income at Commerzbank AG in Frankfurt. “It’s probably the same old peripheral banks that went for the money.”

Banks are becoming wary of lending to each other again amid concerns about the losses they would face on Greek bond holdings in the event the country defaults or undergoes a debt restructuring. The ECB is responding by stepping up its provision of liquidity to banks to avert a credit crunch. It has already reintroduced an unlimited six-month loan and is coordinating with the Federal Reserve to provide euro-area banks with dollars.

The ECB said today it will lend one euro-area bank $500 million for seven days in its regular weekly offering. The central bank will offer a 13-month euro loan on Dec. 21.

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