Banks line up for more cheap cash as ECB offers new loans
BANKS are set to line up for more easy money on Wednesday when the European Central Bank offers an unlimited volume of cheap loans for the second time in as many months.
Lloyds Banking Group and Royal Bank of Scotland have both said they are attracted by the so-called three-year Long-Term Refinancing Operation (LTRO) because of its incredibly low one per cent interest rate. Yesterday, Spanish bank BBVA also said it would seek around €11bn (£9.3bn) of funds.
At the first LTRO in December, 523 banks gorged on loans worth €489bn, and analysts expect a similar take up at this week’s repeat auction.
The first LTRO, launched shortly after Mario Draghi took the reins at the ECB, appears to have worked wonders in the short-term.
It meant cash-flush banks no longer had to worry about rolling over a big batch of maturing bonds.
The threat of a catastrophic bank failure evaporated, and government bond yields in Italy and Spain, previously driven sky-high by a buyers’strike, started to fall. Business confidence rose, as did stock markets.
But it is unclear whether banks are lending the money to the “real economy”, with several parking large amounts of cash at the ECB.