ECB releases latest dollar lending

November 19, 2008
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, FRANKFURT, November 19 – The European Central Bank published on Wednesday details of its latest operations to boost interbank lending on eurozone money markets.

The central bank has been providing huge amounts of euros, dollars and Swiss francs to eurozone banks to get them lending to each other again after the global financial crisis froze the markets.

The ECB announced the results of two operations to provide one-week dollar loans to eurozone banks, which in exchange will put up collateral or euro cash.

The ECB obtains dollars from the US Federal Reserve through what is known as a reciprocal currency arrangement, or swap, and lends them to eurozone banks which have operations and/or financing needs in the US currency.

In the largest operation, the ECB will lend 72.472 billion dollars (57.37 billion euros) for eight days from Thursday at a fixed rate of 1.48 percent that was agreed upon with the Fed.

The US central bank\’s benchmark Fed funds rate is currently 1.0 percent.

The second ECB operation will see the ECB lend 943 million dollars for eight days from Thursday against euros at a rate of 0.000329 dollars per euro, or 3.29 swap points.

A week earlier, similar operations resulted in ECB loans of 60.574 billion dollars against collateral at a rate of 1.43 percent, and a little more than one billion dollars against euros at a rate of 3.22 swap points.

This week, only six banks offered euro cash for the dollars, compared with 52 that put up collateral against the loans, which along with the amounts involved indicated a clear preference for that option.

A third foreign currency operation announced later put Swiss francs worth 542.8 million euros at the disposition of eurozone banks for 84 days starting Friday.

Run the same way as the dollar/euro operation, with the ECB selling francs for euros on Friday and buying them back on February 13, seven banks agreed to pay 0.005617 francs per euro, or 65.17 swap points, for access to the Swiss currency.

The funds help commercial banks maintain minimum reserves needed to underpin lending to companies that make up the broader eurozone economy.

The ECB and other central banks have pulled out all the stops in their efforts to get interbank lending started again.

The markets froze as commercial banks became wary that loans to each other would be repaid owing to huge losses being suffered following the collapse of the US market for high-risk, or subprime, mortgages.

Money markets determine the availability of credit for vast numbers of people around the globe, from managers trying to fund their businesses to families and students seeking mortgages and personal loans.

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