New six-month ECB facility a boost to banks
Published 05/08/2011 | 05:00
IRISH banks are expected to be among the biggest beneficiaries of the European Central Bank's surprise decision to begin lending money for six months -- doubling the time of its longest financing operation.
The move doesn't go as far as the 'medium-term liquidity' facility the Irish Government was pushing for earlier in the year, but industry sources said it would still be "welcomed" by banks here since "anything longer is better".
Irish institutions are among the biggest borrowers of ECB money with drawings of €70bn between the six bailed-out banks alone, plus another €55bn of "emergency funding" channelled through the Irish Central Bank.
The longest term available to them at present is three months, a "non-standard" measure introduced by Frankfurt after the money markets froze over in late 2008.
The ECB has repeatedly spoken about its desire to end its "non-standard measures", complaining that banks had become "addicted" to cheap central bank liquidity.
Yesterday, however, the Frankfurt powerhouse announced that the three-month auctions would continue "for as long as necessary and at least until . . . 12 January 2012".
ECB boss Jean-Claude Trichet also unveiled plans to offer unlimited six-month money from August 9, at the same interest rate as the ECB's "main" operations, a measure which he said had been triggered by "renewed market tension".
Six-month money was offered earlier in the crisis. Mr Trichet said the decision to reintroduce the operation was taken "unanimously" by the ECB's governing council, but he stressed that only one offering was planned at present.
At July's press conference, Mr Trichet categorically ruled out any plans to create a 'medium-term liquidity fund' -- but yesterday's action is different because the fund the Government had been pursuing would have replaced the €55bn of emergency borrowings, rather than elongating direct ECB borrowings.
The ECB recently appointed an external adviser to assist in dealing with the Irish banks. Mr Trichet yesterday denied the appointment had been made because his organisation was "concerned" with the level of cash out to Ireland.
"There is no additional interpretation," he said. "We consider it is the right way to proceed, when you have an important monetary operation, . . . [which is] of course the case in Ireland."