"Lend" with what interest rates? Same as to US banks? This is going to cause massive inflation if the banks dont fail and if they do, it will become part of the national debt?
ECB Coordinates With Federal Reserve to Provide Dollars to Euro-Area Banks
The European Central Bank said it
will lend dollars to euro-area banks in a series of three-month
loans as the region’s debt crisis limits market access to the
U.S. currency.
The Frankfurt-based ECB said it will coordinate with the
Federal Reserve and other central banks to conduct three
separate dollar liquidity operations to ensure banks have enough
of the currency through the end of the year. The three-month
loans are in addition to the bank’s regular seven-day dollar
offerings and will be fixed-rate tenders with full allotment,
the ECB said in a statement today. They will be offered on Oct.
12, Nov. 9 and Dec. 7.
The euro jumped more than a cent against dollar after the
announcement and traded at $1.3854 at 5:14 p.m. in Frankfurt.
Stocks rose and Treasuries fell, pushing 10-year yields up the
most in more than three weeks.
“The market focus on this as a problem is way over the
top,” said Chris Rupkey, chief financial economist at Bank of
Tokyo-Mitsubishi UFJ Ltd. in New York. “This is not a Lehman
event. Extending the term to three months today is a clever way
to show the central bank authorities are on the case.”
Two Banks
Two banks this week borrowed dollars from the ECB in its
seven-day operation, a sign they are finding it difficult to
access the U.S. currency in markets as the debt crisis makes
financial institutions more wary of lending. The premium
European banks pay to borrow in dollars through the swaps market
is close to the highest level in almost three years. It declined
after the ECB’s announcement today.
The cost of converting euro-based payments into dollars, as
measured by the one-year cross-currency basis swap, was 80.25
basis points below the euro interbank offered rate, or Euribor,
at 4:15 p.m. in Frankfurt. It widened to as much as 112.6 basis
points earlier this week, the most since Dec. 2, 2008, according
to data compiled by Bloomberg.
“The ECB is seeing the stress in the dollar markets right
now,” said Benjamin Schroeder, a rate strategist at Commerzbank
AG in Frankfurt. “If there was really a big problem you’d see
more demand in the seven-day tender. The ECB is trying to
prevent things from getting out of hand.”
BNP Paribas Surges
The ECB yesterday allotted $575 million in its seven-day
dollar operation, without naming the banks it lent to. French
banks Societe Generale SA and BNP Paribas SA said yesterday they
didn’t borrow dollars from the ECB.
BNP Paribas, France’s biggest lender, rose as much as 22
percent in Paris trading after today’s ECB announcement. BNP
Paribas shares were up 5.57 euros, or 21 percent, to 32.47 euros
as of 3:18 p.m.
Moody’s Investors Service yesterday cut the long-term
credit ratings of Credit Agricole SA and Societe Generale,
France’s second- and third-largest banks, and put BNP Paribas on
review for a possible downgrade, citing the risks posed by their
investments in Greece. Moody’s also said it will evaluate the
impact of tighter financing markets on French banks.
While the ECB’s provision of liquidity helps to ease
tensions in money markets, “the root is the debt crisis, and
that will remain on the table for a long time,” said Marco Valli, chief euro-area economist at UniCredit Group in Milan.
“The ECB could decide to extend refinancing operations to 12
months or resume the covered-bond purchase program.”
Strains Continue
The ECB last introduced a three-month dollar loan in May
2010 to calm markets roiled by the threat of a Greek default.
The ECB has been lending banks as much euro cash as they
need at its benchmark rate since October 2008, when the collapse
of Lehman Brothers Holdings Inc. triggered a global recession.
It has been forced by the debt crisis to extend those measures
and last month reintroduced an unlimited six-month euro loan.
The ECB’s dollar loans tackle “one small problem in the
market at the moment,” said Chris Scicluna, deputy head of
economic research at Daiwa Capital Markets Europe in London.
“Ultimately, until there’s a more comprehensive response to the
sovereign debt crisis, which has been feeding into concerns
about the health of European banks, the strains in Europe’s
banking sector will continue.”
To contact the reporter on this story:
Jeff Black in Frankfurt at
Jblack25@bloomberg.net
To contact the editor responsible for this story:
Craig Stirling at
cstirling1@bloomberg.net
No comments:
Post a Comment