Bloomberg News

Draghi Says ECB ‘Reasonably Satisfied’ With Cash Provision

March 01, 2012

European Central Bank President Mario Draghi said he’s “reasonably satisfied” with the second provision of unlimited cash to lenders over three years.

“We’re reasonably satisfied,” Draghi told reporters after a meeting of European leaders in Brussels today. This is “not only for the amount, which is within explainable targets, within explainable limits, but also because of the significant, if not extraordinary number of banks participating.”

The ECB said yesterday it will lend 800 financial institutions a record 529.5 billion euros ($705 billion) for 1,092 days to relieve liquidity strains and grease the flow of credit to households and businesses across the 17-member currency region. Draghi, who will hold the next rate meeting on March 8, said while the economy shows “tentative signs of stabilization,” there’s still “a lot of uncertainty.”

The central bank’s two liquidity operations have helped ease concern about a credit crunch and won governments time to agree on measures to contain the debt crisis. Euro-area finance ministers today authorized the region’s bailout fund to raise money for Greece’s bond exchange, the first step in releasing funds from a 130 billion-euro rescue package.

Economic Contraction

Before the December operation, the ECB reduced the rating threshold for certain asset-backed securities. Last month, it said seven of the 17 national central banks in the euro area will also accept credit claims, which Draghi estimated would increase the collateral pool by another 200 billion euros. The aim is to give small and medium-sized banks greater access.

“Many of them are small banks, participating for relatively small amounts, which means that the target of having the small and medium-sized banks participating in these operations has been achieved,” Draghi said. “Now that is important because it’s small and medium-sized banks that mostly finance the small and medium-sized enterprises.”

The European Commission last month forecast the euro-region economy to shrink 0.3 percent this year, with Spain, Greece, Portugal and the Netherlands all contracting. The ECB will release its latest economic projections next week.

“All in all it’s a reassuring picture which is still very fragile because we have a lot of uncertainty and the countries of Europe have to persevere,” Draghi said. “Uncertainty is not only in Europe but also in the rest of the world. So far it’s a much much better picture than we had until November.”

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

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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