ECB to offer markets 150 billion euros as analysts warn of wider crisis
FRANKFURT (AFP) — The European Central Bank said Friday it would provide banks with 150 billion euros (235 billion dollars) in additional liquidity, including its first ever six-month refinancing operations.
An ECB statement said the move was "aimed at supporting the normalisation of the functioning of the euro money market."
Banks and financial institutions use the money markets to raise funds directly but this source has dried up as defaults on US subprime home loans and subsequent huge losses have undercut confidence, leading to a global credit squeeze.
The markets are central to the functioning of the financial system and central banks led by the US Federal Reserve have been injecting funds to get them going again so as ensure the flow of credit essential for business.
Such measures helped ease money market rates earlier this year but they have edged up again in recent weeks amid persistent unease over how much damage the US subprime crisis has done to the banking system.
For Natixis analyst Sylvain Broyer, the ECB move showed it was facing "a real financing crisis."
He and others said the problems were spreading beyond financial markets, making it harder to fund business operations that required money for longer periods of time.
The ECB's governing council decided "to conduct supplementary longer-term refinancing operations" that would take the form of two three-month operations and two six-month operations, its statement said.
The six-month operations would provide 25 billion euros each, while the three-month transactions would be for 50 billion euros each and replace two existing operations worth 60 billion euros apiece, it added.
Regular monthly refinancing by the central bank would not be affected, the bank said.
Broyer said "we are going to see consequences on the real economy" because if businesses are unable to obtain financing, they will invest less and take on fewer workers.
Commerzbank analyst Christoph Balz said "the latest ECB operations have not had the success hoped for" and that while the central bank could calm markets a bit, it "can certainly not resolve everything" because the underlying problem was one of trust between banks.
