ECB to dish out first round new ultra-long loans to boost lending

Wed Sep 17, 2014 7:06pm EDT
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By Eva Taylor

FRANKFURT (Reuters) - The European Central Bank will hand out the first round of its new four-year loans on Thursday, the flagship tool in a new stimulus package it hopes will stave off deflation and revive the ailing euro zone economy.

The new targeted funds, or TLTROs, will be tied to lending to the mostly smaller firms that are the 18-country euro zone's economic backbone.

Markets will be watching an announcement on the total amount of the loans allotted, due at around 4.15 a.m. ET, to gauge banks' appetite for the funds as they try to assess how effective the measure will be in getting banks to lend more to companies.

Banks can potentially borrow up to 400 billion euros at tenders this week and in December, at a slight premium to the ECB's regular funding operations, with opportunities to take additional loans running through to mid-2016.

A Reuters poll of 20 money market traders pointed to banks taking over three quarters of the sum on offer, snapping up 133 billion euros at Thursday's offering and a further 200 billion on December 11.

"We would warn about drawing too strong conclusions from the September round," said ABN Amro analyst Nick Kounis, who expects a total take up of 350 billion euros this year. "The take-up might be heavily skewed to December."

Banks might want to wait until they find out more details in October of the ECB's other stimulus steps, including its plans to buy asset-backed securities and covered bonds. They may also choose to hold on to their existing crisis loans for a bit.

The ECB flooded the market with cheap three-year loans at the height of the debt crisis in late 2011 and early 2012. They expire early next year and many banks are expected to use the new four-year loans to fund redemptions.   Continued...

The headquarters of the European Central Bank (ECB) is pictured prior to the bank's monthly news conference in Frankfurt July 3, 2014.    REUTERS/Ralph Orlowski