Bloomberg News

ECB Says New Tools to Ensure Banks Have No Liquidity Constraints

October 13, 2011

Oct. 13 (Bloomberg) -- The European Central Bank said its decision to extend the use of non-standard measures will help banks weather the region’s sovereign-debt crisis.

Purchases of covered bonds, loans of up to 13 months as well as unlimited cash provisions up to three months “will continue to ensure that euro-area banks are not constrained on the liquidity side,” the Frankfurt-based ECB said in its monthly bulletin today. “All the non-standard measures taken during the period of acute financial market tensions” are “temporary in nature.”

The ECB last week resisted calls to cut interest rates, instead opting to bolster the banking system to prevent a fiscal crisis-induced credit crunch. European officials are seeking to meet an end-of-month deadline to get to grips with the turmoil, which has propelled Greece to the brink of default, shaken world markets and fueled speculation that the euro might not survive in its current form.

The ECB urged “all euro-area governments to fully implement all aspects of the decisions they took” on July 21, according to the report, which echoed President Jean-Claude Trichet’s remarks on Oct. 6. Euro-region leaders agreed in July to expand the role of the region’s rescue fund by allowing it to buy sovereign bonds on the secondary market, grant aid to banks and offer credit lines to distressed nations.

The 17-nation euro-region economy is facing “particularly high uncertainty and intensified downside risks,” the ECB said. While the inflation rate will remain above the 2 percent ceiling “over the coming months,” it will “decline thereafter,” with risks to price stability being “broadly balanced” as a weaker economy damps price pressures.

--With assistance from Jeff Black in Frankfurt. Editors: Simone Meier, Fergal O’Brien

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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