Core euro zone banks relying less on crisis funding

Mon Feb 18, 2013 9:31am EST
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By Sakari Suoninen

FRANKFURT (Reuters) - German banks' use of European Central Bank crisis funding dropped by a third in January from the previous month, a further sign that banks in the heart of the euro zone are returning to money markets after last year's credit squeeze.

Banks in countries on the periphery of the 17-member bloc still rely on central bank lending, which, while at a record-low interest rate of 0.75 percent, is above market rates. The divergence complicates the ECB's interest rate-setting plans.

The Bundesbank data released on Monday showed that German banks owed the central bank 49.5 billion euros ($66.1 billion) at end-January, 23.6 billion less than a month earlier, suggesting they took advantage of the first opportunity to pay back the 3-year loans to the ECB, known as LTROs, on January 30.

Most - 20.6 billion euros - of the fall came in German banks' use of longer-term facilities, which cover anything from one month to three years.

The ECB gave banks the ultra-long term loans in two installments roughly a year ago, with euro zone lenders taking more than a trillion euros in cheap cash.

In the first of the twin loans, offered in December 2011, banks took 489 billion euros. In the first opportunity to pay back those loans early, banks returned 137.2 billion euros to the Eurosystem of euro zone central banks on January 30.

Banks with market access can get overnight funds at 0.06 percent, while the interest rate for 3-month loans is 0.223 percent.

CORE CONFIDENCE   Continued...

The logo of the European Union and the word recession are displayed on the screen an iPad and a LCD monitor in Zenica November 16, 2012. REUTERS/Dado Ruvic