ECB Says Banks to Repay EU10.8 Billion of 3-Year Loans Next Week

The European Central Bank said banks will repay 10.8 billion euros ($14.1 billion) of three-year loans next week.

Five banks will return 6.6 billion euros borrowed in the first of the so-called Longer Term Refinancing Operations, and 14 will repay 4.2 billion euros of the second tender, the Frankfurt-based ECB said in a statement today. That takes the total amount of money repaid early to 263.6 billion euros, or 26 percent of the amount lent.

The ECB’s three-year loans helped prevent a credit crunch last year as European banks shied away from lending in the midst of a worsening debt crisis. With excess liquidity in the financial system still around 362 billion euros, some banks are choosing to repay the funds, offered at the average of the ECB’s benchmark rate over their duration, early.

“Considerable progress has been made since last summer in improving the funding situation of banks, in strengthening the domestic deposit base in stressed countries and in reducing reliance on the Eurosystem, as reflected in repayments of the three-year LTROs,” ECB President Mario Draghi said last week.

He also said policy makers stand ready to cut interest rates if the economy deteriorates further, a step that would reduce the interest banks pay on longer-term loans.

The central bank still allows banks to borrow as much money as they want against eligible collateral for periods of one week, one month and three months.

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