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    ECB renews one-day loans of 50 billion dollars

    AFP
    06 Ekim 2008 - 12:49Son Güncelleme : 06 Ekim 2008 - 16:55

    The European Central Bank said Monday it had pumped $50 billion (37 billion euros) into stressed euro zone interbank lending markets in what has become a daily effort to keep cash moving in a critical network.

    Demand for the funds was strong, with 59 banks requesting a total of almost $91 billion and paying 4 percent for the money that was available, the ECB said.

     

    The response confirmed that euro zone money markets remained under intense pressure, in particular with respect to commercial banks need for dollars.

     

    An ECB offer of dollars on Friday to tide euro zone banks over the weekend had seen banks seek a total of $82.9 billion, and pay 2.51 percent for the funds. The higher rate paid on Monday suggested that tension had grown further.


    The central bank also said it would withdraw up to 220 billion euros ($300 billion) from the markets at its benchmark rate of 4.25 percent in what it calls a fine-tuning operation.

     

    When the ECB determines there is surplus cash in some part of the interbank markets it siphons the necessary amount off to prevent the excess from fuelling inflation and to maintain rates near its benchmark levels.

     

    Last week, the ECB carried out three such transactions, withdrawing a total of 567 billion euros from the interbank markets.

     

    On Monday, the central bank extended participation in exceptional fine-tuning operations to hundreds more financial institutions if they met certain criteria.

     

    National central banks would determine which banks were eligible, the ECB statement said.
    The decision was expected to raise the number of eligible institutions from around 130 previously to some 1,700.

     

    Since the end of last month, Germany, Greece and Ireland have issued guarantees to cover savings in the countries banks, and other European states were under pressure on Monday to bolster their financial defenses as well.

     

    Commercial banks generally lend and borrow cash from each other on interbank markets but these have dried up since the U.S. market for high-risk, or subprime, mortgages collapsed more than a year ago.

     

    The 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 personal loans.

     

    The ECB and other major central banks have been providing huge amounts of cash to ease turmoil stemming from the latest crisis in the U.S. financial sector, after the investment bank Lehman Brothers went bankrupt last month.

     

    Some analysts question whether the central bank moves are working however, saying that commercial lenders soak up the extra cash but do not lend to each other or extend it as credit to businesses and individuals.

     

    They reportedly use some of the funds to buy government treasury bills because they are presently considered one of the safest investments.

     

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