Banks lunged at the European Central Bank’s first ever offer of three-year loans on Wednesday, taking nearly €490-billion euros ($643-billion U.S.), well above the €310-billion forecast in a Reuters poll.
Following are analysts’ views on the tender.
JONATHAN LOYNES, CHIEF EUROPEAN ECONOMIST, CAPITAL ECONOMICS
“The very heavy take-up of the ECB’s three year long-term refinancing operation (LTRO) provides some encouragement that banks’ liquidity needs are being amply met.
“But while this might help to address recent signs of renewed tensions in credit markets and support bank lending, we remain skeptical of the idea that the operation will ease the sovereign debt crisis too as banks use the funds to purchase large volumes of peripheral government bonds.”
MARTIN VAN VLIET, SENIOR ECONOMIST AT ING
“The take-up of loans is massive, and even higher than in the ECB’s first 12-month longer-term refinancing operation (LTRO) of June 2009, which attracted demand of €442-billion.
“However, the lower number of participating banks (523 versus 1121 previously) suggests that the take-up is currently less widespread - and probably more concentrated in banking systems in peripheral euro zone countries. We will be keeping a close eye on national central bank data over the next few weeks for further clues on which countries’ banking systems tapped the three-year facility.
“Today’s allotment of three-year loans is equivalent to almost one and a half times Spain and Italy’s combined sovereign bond issuance in 2012. However, we doubt whether the money will be used extensively to fund purchases of peripheral debt, given concerns about mark-to-market risks and possible reputation risks.”
ANNALISA PIAZZA, NEWEDGE STRATEGY
“The take-up was a massive €489-billion, much higher than the expected €300-billion. Liquidity on the banking system has now increased considerably.
“In a nutshell, the three-year auction can been considered as successful in terms of adding liquidity to the banking sector. We believe most of the take up has come from EMU periphery’s banks which have more problems with long-term fundings. However, given the large number of banks participating at today’s auctions, we cannot rule out some core countries’ banks have started to put on some carry positions.”
ALINE SCHUILING, ECONOMIST ABN AMRO
“The result was well above the consensus expectation of around €300-billion.
“It could also allow banks to engage in a carry trade, in which they would use the ECB funds to purchase higher yielding government bonds.
“This seems to partly explain the unexpectedly strong demand for recent Spanish bond auctions, as well as the sharp decline in Italian and Spanish bond yields over the past few days. Looking forward, the next three-year LTRO will be allotted by the ECB on 29 February 2012. Since banks have high refinancing needs in the first quarter of next year, demand for this LTRO might be strong as well.”
JAMES NIXON, SOCIETE GENERALE
“This is good. It’s a positive number, at the top end of expectations. You have to regard it as a positive result. This is at least a solid €240-billion (net) increase for banks. But it is still short of covering all of the banks’ financing for next year. So, it could ease fears of a credit crunch somewhat.”