Business World

Sunday 24 September 2017

Irish banks hope to gain as ECB plans cheaper funds for Spain

Donal O'Donovan

Donal O'Donovan

BAILED-out banks here are hoping to benefit from more and cheaper funding under European Central Bank (ECB) plans to ease lending terms to help Spain, senior bankers said last night.

As the Spanish banking crisis deepens Spain sought to ease investors' fears that it needs a full-scale international bailout of its economy by publishing two "stress tests" showing that Spanish banks need between €16bn and €62bn in new capital.

The estimates of how much extra capital its banks might need fall well within the sum of up to €100bn that Spain requested for its financial system from its eurozone partners this month.

However the ECB is reported to be considering significantly changing its rules to make it much easier for banks in the euro area to access cheap central bank loans.

The news first emerged in a report in German newspaper 'Die Welt', citing central bank sources. The reports claim that the ECB is considering changes which would allow the use of assets such as mortgage-backed securities as collateral.

The plan is aimed at keeping cash flowing into banks in Spain and beyond. The crisis in Spain, including withdrawals from banks there, means lenders are at risk of being frozen out of the normal markets just as they need cash.

Banks in the eurozone can borrow cheaply from the ECB, but only if they have eligible criteria to put up as security for the loans.

Collateral

When the banking crisis was at its height here, Irish banks ran out of eligible collateral for ECB loans and the Irish Central Bank was forced to lend some €50bn in more expensive emergency loans, dubbed "ELA" loans, with looser collateral rules.

Banks here have been weaning themselves off ELA loans, not least because having to access the emergency system pushes up other borrowing costs and is a drag on banks' own credit ratings.

Looser rules over access to ECB loans would give Irish banks greater access to liquidity, without the "black mark" of using the ELA, a source said.

Irish Independent

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