The European Central Bank said banks will repay 8.1 billion euros ($10.5 billion) of three-year loans next week.
Nine banks will return 4.1 billion euros borrowed in the first of the so-called Longer Term Refinancing Operations, and 11 will repay 4 billion euros of the second tender, the Frankfurt-based ECB said in a statement today. That takes the total amount of money repaid early to 252.8 billion euros, or 25 percent of the amount lent.
The ECB’s three-year loans helped prevent a credit crunch last year as European banks shied away from lending in the midst of a worsening debt crisis. With excess liquidity in the financial system still around 364 billion euros, some banks are choosing to repay the funds, offered at the average of the ECB’s benchmark rate over their duration, early.
“Considerable progress has been made since last summer in improving the funding situation of banks, in strengthening the domestic deposit base in stressed countries and in reducing reliance on the Eurosystem, as reflected in repayments of the three-year LTROs,” ECB President Mario Draghi said yesterday.
He also said policy makers stand ready to cut interest rates if the economy deteriorates further, a step that would reduce the interest banks pay on longer-term loans.
The central bank still allows banks to borrow as much money as they want against eligible collateral for periods of one week, one month and three months.
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