ECB gets tough on bank lending
THE EUROPEAN Central Bank (ECB) yesterday unveiled a tougher stance on lending, subjecting banks to more stringent penalties for borrowing from the ECB using more risky assets as collateral.
Banks in Greece, Portugal, Spain and other heavily indebted parts of the Eurozone have been locked out of normal bank-to-bank lending markets during the most turbulent periods of the financial and debt crises, leaving them almost entirely dependent on the ECB for funding. The ECB’s new sliding scale of “haircuts” – the amount it takes off collateralized asset values to protect itself – will come into force in 2011.