European Central Bank offers $501 billion in short-term funding to banks news
18 December 2007

Mumbai: The European Central Bank (ECB) has offered $501 billion (348 billion euros) in short-term loans to banks, giving a further push to a joint action announced by four central banks last week to offer unlimited funding to banks in need.

In a move to bridge any funding gap as banks close their books for the year-end, the ECB said it would satisfy all bids for two-week funding at or above 4.21 per cent.

Banks have been quick to respond, absorbing 348.6 billion euros at the 4.21 per cent, the ECB said.

That pushed down two-week lending rates in the euro area to 4.5 per cent from 4.9 per cent.

This is the second time since August and the second time in the bank's nine-year history that the ECB has offered unlimited funds.
 
The Bank of England also held its first auction of 10 billion pounds ($20 billion) of three-month funds today.

BoE charged a minimum bid rate of 5.36 per cent for its offer of 10 billion pounds of 3-month loans, as part of a coordinated action with other central banks to ease market tensions by offering cash at favorable rates.

The money was taken up though demand was muted. Previous similar auctions had failed as the BoE had set a minimum rate way above the main lending rate and no bank wanted to be seen as desperate for cash.

The move comes as the Federal Reserve yesterday held its first auction of $20 billion in funds under the new term auction facility. The Swiss National Bank (SNB) also had offered up to $4 billion at a discount to the Fed's existing discount rate.

Results of those auctions are due on Wednesday

Analysts say the joint action, whereby the Fed, SNB, ECB, BoE, Bank of Canada and others provide fresh short-term lending, is unlikely to solve the US subprime mortgages crisis.

Only when uncertainty has been resolved as to where the exposure lies are commercial banks likely to lend money freely to each other again on the interbank market, which oils the global economy's wheels.


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European Central Bank offers $501 billion in short-term funding to banks