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Ecb Lends Banks 442 Billion Euros For A Year

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June 24 (Bloomberg) -- The European Central Bank said it will lend banks 442 billion euros ($621 billion) for 12 months as it steps up efforts to unblock credit markets in the 16- nation euro region.

The Frankfurt-based ECB filled all bids in its first auction of 12-month loans to banks at the current benchmark interest rate of 1 percent. It said the 1,121 banks that participated will receive the funds tomorrow.

The ECB, battling Europe’s worst recession since World War II, is concentrating its efforts on lubricating the banking system, which accounts for about three quarters of company financing in the region. The central bank has cut interest rates to a record low and will next month start buying 60 billion euros of covered bonds to help free up credit.

The ECB has been lending banks as much money as they want against eligible collateral for up to six months since October last year. It announced in May it would extend the maximum maturity on its loans to 12 months.

ECB council member Axel Weber said yesterday he expects the 12-month loans to “lead to a further narrowing of spreads†on longer-term market interest rates. Demand for shorter-term ECB loans may wane as a result or the new auction, he said.

Yesterday, the ECB’s allotment of 7-day loans to banks fell to the lowest amount since Lehman Brothers Holding Inc. filed for bankruptcy nine months ago.

The ECB expects the economy of the 16 euro nations to shrink about 4.6 percent this year before returning to growth by the middle of 2010. Loans to the private sector declined for a third straight month in May as banks tightened lending standards and demand for credit wilted.

Enough to prop up struggling European banks? I doubt it.

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I think I read sometime last year that European banks (including ours) were £12 trillion in debt. The story was then pulled from Bloomberg a few hours later.

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