Banks May Take 680 Billion Euros of ECB Loans, Survey Shows
February 08, 2012, 7:19 PM ESTBy Gavin Finch and Liam Vaughan
Feb. 8 (Bloomberg) -- European banks may borrow as much as 680 billion euros ($902 billion) this month from the European Central Bank to avert a credit crunch, according to a survey of investors by Goldman Sachs Group Inc.
The ECB last month lent banks an unprecedented 489 billion euros for three years in a so-called Long-Term Refinancing Operation. Investors expect total borrowings from the ECB after the second auction to be held on Feb. 28 to almost 1.2 trillion euros, Goldman Sachs wrote in the report today.
The ECB is flooding the banking system with cheap money in a bid to avert a credit crunch after the market for unsecured bank debt seized last year and funding from U.S. money markets dries up. Lenders in the region are being offered unlimited three-year loans in exchange for eligible collateral at an interest rate of 1 percent.
Banks and investors said the low cost of the loans, the expanded pool of eligible collateral and the lack of stigma associated with participating meant that demand would be higher at this auction than the previous one, according to Goldman Sachs.
“Our poll indicates that the ECB’s efforts to reduce the stigma related to its facilities have been successful,” Goldman Sachs wrote in the report. “Investors perceive high take-up to be positive for bank share prices.”
Lenders surveyed by Goldman Sachs estimated that banks would borrow 562 billion euros from the ECB, bringing the total from the two auctions to almost 1.1 billion euros.
Goldman Sachs said it received 343 responses from investors and 15 from banks.
--Editors: Jon Menon, Dylan Griffiths
To contact the reporters on this story: Liam Vaughan in London at lvaughan6@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
