Mystery bank taps ECB dollar facility for emergency loan

AN unidentified bank was forced to seek an emergency $500m (£305m) loan in US dollars from the European Central Bank yesterday in a sign lenders may be struggling for liquidity again.

The seven-day loan was the first time the ECB’s dollar swap facility has been tapped since March, and the first large loan it has given since May 2010.

In a further sign the bank may have borrowed in desperation, the ECB priced the loan at an interest rate of 110 basis points, far higher than standard dollar market rate of about 88bps.

Economists said the development was “worrying” and showed a loss of trust in the interbank loan market that echoed the start of the last financial crisis in 2008.

“It rings a couple of warning bells,” said Evolution analyst Elisabeth Afseth. “Banks have been very reluctant to use the facilities and it is quite a high amount so it is not good news.”

“This shows that the situation has escalated,” said Citigroup analyst Juergen Michels.

But both analysts said the unlimited nature of the ECB’s loan facilities would effectively prevent any repeat of a 2008 crisis even if banks experienced a similar loss of liquidity.

The loan followed a week of heavy use of the central bank’s euro-denominated overnight loans.

France’s banks were last week hit by rumours that they were highly exposed to risky Eurozone debt, leading to reports that Asian banks were cutting credit lines to them.

Italy’s banks have also suffered interbank liquidity shortages over recent months.