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Draghi Says Banks Are Starting to Reduce Reliance on ECB Funding

European Central Bank President Mario Draghi said euro-area banks are becoming less dependent on ECB funds as the announcement of its new bond-purchase program calms financial markets.

“Since the announcement of the possibility to undertake” Outright Monetary Transactions, “there have been several signs of greater tranquility in financial markets,” Draghi said in a speech in Milan today. “Recourse to the ECB by banks in some large countries that were in difficult funding conditions has declined for the second consecutive month.”

The ECB currently lends banks as much cash as they need in return for adequate collateral to grease credit provision in the euro area. Total ECB lending to euro-area banks fell by almost 4 billion euros ($5.1 billion) to 1.28 trillion euros last week, the ECB said on Nov. 13.

Draghi also urged governments to fix their public finances by cutting spending rather than boosting taxes in order to convince investors of their creditworthiness.

“The process of budget consolidation must be based on reducing public spending and not in raising taxes,” Draghi said. “It’s essential that the process be credible, irreversible and structural to have an effect on the spread.”

Draghi reiterated that that the ECB will only activate its bond-buying program if a country asks for help and signs a Memorandum of Understanding with Europe’s bailout fund.

“The ECB will not be forced to step in because of a lack of policy implementation,” Draghi said.

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