ECB eases lending rules in bid to halt new crisis
THE European Central Bank is reinstating two of its most powerful financial market interventions in a bid to prevent the latest eurozone woes from spiralling into another fully blown banking crisis.
ECB president Jean Claude Trichet revealed the exceptional measures yesterday, as he hosted a press conference after the last governing council meeting of his eight-year reign at the bank.
One of the supports will see the ECB offering banks unlimited 12-month loans in October and 13-months loans in December, giving banks greater certainty than the 90-day money usually on offer.
The second scheme will see the ECB spend €40bn buying bank bonds in primary and secondary markets by October 2012, a measure that should reduce the banks' costs of issuing bonds.
The ECB also promised to maintain its shorter-term "main" lending operations at full allotment, or unlimited money at a fixed rate, until mid July at the earliest.
"(The decisions today) are extremely important," Mr Trichet told journalists yesterday, adding that the ECB wanted to make sure banks were "not constrained on the liquidity side".
The ECB's governing council, which includes 17 central bank governors plus six executive board members, agreed on the measures by "consensus", but not unanimously.
Tensions may have stemmed from the fact that the ECB had publicly stated its plan to wind down its "non-standard" measures, a plan that's incompatible with reinstating two supports that were introduced and pulled back earlier in the crisis.
Mr Trichet yesterday stressed that all non-standard measures are "by construction temporary in nature", a nod to the fact that the ECB does not plan to offer the supports indefinitely.
The ECB has also faced calls to make commitments to buying sovereign debt and to loan money or help "leverage" the Europe's EFSF bailout fund. Mr Trichet yesterday said his governing council "does not consider it would be appropriate" for the ECB to leverage the EFSF.
Europe's most powerful banker also used his last press conference to mount a passionate defence of his organisation's actions throughout the crisis, actions that some experts say actually made things worse.
"I am confident that when we look (back) at what has been done, we'll see we were trying to do our best in a very difficult environment and in an environment where economic governance was not at a level that was required," Mr Trichet concluded.