ECB provides banks with €530BN of cheap loans

The European Central Bank (ECB) has provided a further €530 billion ($713 billion) of cheap three-year loans to 800 banks across the European Union, fuelling hopes that more money can be made available to businesses and government borrowing costs will ease further.

The loans come after an initial first tranche of large-scale cheap funds worth €489 billion were made available in December, credited with staving off a credit crunch and calming financial markets.

The injections, part of the ECB’s Longer Term Refinancing Operation (LTRO), are aimed at tacking the euro zone debt crisis and reducing strains in the financial system by improving banks’ liquidity.

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Markets appeared to welcome the announcement, the BBC reported, with banking shares rising strongly.

In Germany, Commerzbank saw gains of 3.6 percent, followed by Deutsche Bank, which added 1.7 percent. France’s Crédit Agricole was ahead by 4.5 percent, while Société Générale rose 2.3 percent.

While banks can use the funds in any manner they see fit, a substantial amount of the first instalment of loans went towards paying for maturing debt.

This time around, banks are being encouraged to buy up sovereign debt, with a particularly focus on Spanish and Italian bonds, according to Sky News.

ECB President Mario Draghi has also called on banks to lend money to households and business to boost spending and economic growth.

According to Reuters, sources say the central bank wants this second round of credit easing to be the last one, as it is concerned that banks are becoming too reliant on ECB funds and wants to place the onus for tacking the debt crisis back onto euro zone governments.

Banks have already borrowed more money from the ECB than ever before. Italian banks took more than €200 billion in January, with institutions in Spain and France not far behind. 

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