ECB Continues Cash Injections for Ailing Banks and Markets | Europe| News and current affairs from around the continent | DW | 23.09.2008
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ECB Continues Cash Injections for Ailing Banks and Markets

In another busy day at the European Central Bank, 180 billion euros ($266 billion) in refinancing was allotted and an offer of 27 billion euros ($40 billion) in one-day loans was renewed, the ECB said in a statement.

Euro sculpture and European Central Bank, ECB, in Frankfurt, Germany

The ECB was responding to the continued strong demand for central bank cash

The 180 billion euros, part of a regular weekly refinancing operation, was allocated between a total of 506 financial institutions at an average rate of 4.78 percent for one-week loans, well above the inter-bank market rate of 4.649 percent in London on Tuesday, Sept. 23. The lowest rate at which the ECB provided cash to commercial banks was 4.73 percent, a statement said.

On another day which saw strong demand for central bank cash, the ECB's move showed that tension remained high on money markets used by banks to lend to one another, since the average rate at last week's auction was 4.58 percent.

ECB rolls over $40 billion in one-day loans

Dollars and Euros

A currency swap with the US Federal Reserve freed up cash

The $40 billion the ECB provided on Tuesday was heading for euro zone banks after the ECB rolled over a one-day loan of US currency obtained in a swap with the US Federal Reserve.

More than half that amount was provided at a favorable rate of 3.3 percent, the ECB said, adding that demand for the funds was nearly double the amount available.

The central bank's benchmark lending rate is 4.25 percent.

The offers came as the US Congress studied a $700-billion rescue plan designed to bail out the country's troubled financial industry, which is reeling under the weight of bad mortgage loans.

In London, the Bank of England also renewed on Tuesday its one-day, or overnight, loan offer of $40 billion to banking institutions that face funding problems of their own because of the credit crunch.

More instability to come at quarter's end

The ECB announced Monday that it forecast renewed tension on euro zone money markets as the end of the third quarter nears and pledges to inject more cash if necessary to keep inter-bank lending on track.

Investors look at the share index at a private stock market gallery in Kuala Lumpur, Malaysia

World markets eye the end of the quarter nervously

"The ECB continues to closely monitor liquidity conditions and notes some tensions in money market rates over the end-of-quarter," a statement said. "As on previous occasions the ECB stands ready to allocate additional liquidity, also by means of additional operations, if needed," it added.

The end of financial quarters are often times of stress for banks as they close their books and balance their accounts.

Last week, the ECB injected a total of 125 billion euros into money markets via three rapid refinancing operations after the US investment bank Lehman Brothers went into bankruptcy.

On Monday, the ECB estimated euro zone banks would need 119 billion euros to meet minimum reserve requirements for the coming week.

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