Reuters is reporting that banks took a huge 489 billion euros at the European Central Bank’s first ever offering of three-year funding on Wednesday, raising hope [seen in stock markets] a credit crunch can be avoided and that the money may be used to buy Italian and Spanish bonds.
A total of 523 banks borrowed money at the tender with demand way above the 310 billion euros expected by traders polled by Reuters in the run-up to the operation.
The banks’ lunge for funding pushed the euro to a one-week high versus the dollar and sparked a rally in stocks.
The three-year loans are the ECB’s latest bold attempt to ease the euro zone’s troubles. It is the most the bank has ever pumped into the financial system, topping the near 450 billion it injected with its first one-year loans back in 2009.
Its hope is that the ultra-cheap and ultra-long funding will have a range of beneficial effects, including bolstering trust in banks, easing the threat of a credit crunch and tempting banks to buy Italian and Spanish bonds, thereby calming markets and easing the currency bloc’s sovereign debt crisis.
"The take-up was massive … much higher than the expected 300 billion euros. Liquidity on the banking system has now increased considerably." said Annalisa Piazza at Newedge Strategy, adding that the take-up probably came largely from banks in the euro zone’s debt-laden states.
"In a nutshell, the three-year auction can been considered as successful in terms of adding liquidity to the banking sector," she said.