Banks to gulp half a trillion euros from ECB

Mon Feb 20, 2012 8:31am EST
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By Jonathan Cable and Yati Himatsingka

LONDON (Reuters) - The European Central Bank will lend nearly half a trillion euros to banks at rock-bottom rates next week through its three-year refinancing operation, despite signs institutions already have adequate liquidity, Reuters polls showed on Monday.

A poll of more than 60 economists showed a median expectation that the ECB will allot 492 billion euros ($647.6 billion) at 1 percent in the second of two 3-year loans on February 29. Forecasts, taken in the past few days, ranged from 200 billion to 1 trillion euros.

A separate poll of 29 money market traders said the ECB would lend slightly less, 470 billion euros, with forecasts ranging from 200 billion to 750 billion euros. Both consensus figures are roughly the size of the first such operation, which totaled 489 billion, last December.

The money from that first operation has eased pressure on euro zone government debt markets and helped to lower government borrowing costs in countries such as Spain and Italy.

Analysts and traders both generally agreed that the take-up of funds this month would be more of an insurance policy and to take advantage of an offer that is too good to be true. Indeed, only 15 of 63 analysts polled said banks would bid because they need the cash.

"It is a one-time opportunity and a free lunch," said a money market trader, summing up a view expressed in several of the past few such polls.

Of the 63 analysts polled, 27 said banks would bid as a safety buffer even though there was adequate liquidity in the system, while 25 said that the main reason they expected bids was because the offer was too good to refuse.

ECB President Mario Draghi urged banks to make use of the offer after the February policy meeting, saying there was "no stigma on using the three-year facility."   Continued...