AP:

banks snapped up €489 billion ($639 billion) in cheap loans from the European Central Bank on Wednesday, a sign of just how hard or expensive it has become to borrow from each other. The huge demand for newly available three-year loans comes as fears rise that heavily indebted European governments could default and force banks and other bond holders to take big losses…

The loans to 523 banks surpassed the €442 billion ($578 billion) in one-year loans extended in June 2009, when the global financial system was reeling from the collapse of the U.S. investment bank Lehman Brothers. It was the biggest ECB infusion of credit into the banking system in the 13-year history of the euro. The ECB wants banks to use the money to help pay off or refinance some €230 billion ($300 billion) in existing loans early in 2012…

it was far higher than the €300 billion ($392 billion) expected…”The good news is, the ECB’s efforts to increase liquidity are working,” said Jennifer Lee, an analyst at BMO Capital Markets. “The bad news is, high demand for the loans creates worries that banks are urgently in need of funds to boost liquidity.”

Let’s do some arithmetic. Much of the €489 billion goes to refinance some €230 billion coming due next month. So there’s €259 billion of net additional liquidity spread among 523 banks. Not that much on a per bank basis, but the largest amounts are no doubt concentrated in the largest institutions.

Still, this is a drop in the bucket, compared to some estimates of the needs of the banking system, and it does nothing at all to deal with the €2.6 trillion sovereign debt problem. Question: what happens when the debts begin to mature and liquidity starts coming out of the system?

This entry was posted on Thursday, December 22nd, 2011 at 12:59 pm and is filed under business, China, Democrats, EU, General, Republicans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.