Banks took 530 billion euros at the European Central Bank's (ECB) second offering of three-year funds on Wednesday, slightly above forecasts, fuelling hopes that more credit will flow to businesses and government borrowing costs will ease further.
A total of 800 banks borrowed money at the tender, with demand exceeding the 500 billion euros expected by traders polled by Reuters and well above the 489 billion allotted in the first such operation in late December.
The euro rose briefly before easing versus the dollar while stocks were little changed after the marginally better-than-expected take-up.
The 3-year loans are the ECB's latest attempt to fight the Euro zone crisis. The central bank's president, Mario Draghi, said after first operation that "a major, major credit crunch" had been averted.
The ECB hopes the limit-free, ultra-cheap and ultra-long funding will have a range of beneficial effects, including bolstering trust in banks, easing the threat of a credit crunch and tempting banks to buy Italian and Spanish sovereign debt.
Rather than a simple flat rate, the 3-year funds were offered at an interest rate averaging the interest rate in its main one-week refi operations over the next three years. That rate is currently at a record low of 1.0 percent. Banks have the option of paying back all or parts of the loans at any time after one year.
Sources have told Reuters that the central bank wants the second ultra-long operation to be the last one, as it is worried banks are becoming too reliant on ECB funds and want to throw the onus back on Euro zone governments to tackle the debt crisis.
Banks have already taken more funds from the ECB than ever before and risk becoming dependent on those. Italian banks had taken more than 200 billion euros in central bank funds by January, and those in Spain and France were not far behind.
