Tuesday, 18 December 2007

ECB Lends Half A Trillion For Year End Squeeze

Desperate times call for desperate measures. From Bloomberg.com:

ECB Lends 348.6 Billion Euros, Easing Year-End Cash Drought

Dec. 18 (Bloomberg) -- The European Central Bank loaned 348.6 billion euros ($501.5 billion) for two weeks to banks to bring down the cost of money at year-end.

The reluctance to lend money after the collapse of the U.S. subprime market pushed interbank euro rates for two weeks to the highest level at least six years earlier this week. The rate banks charge each other for two-week euros fell to 4.45 percent from 4.94 percent, the European Banking Federation said today.

``It won't fix the actual problem of banks not lending,'' said Michael Schubert, an economist at Commerzbank AG in Frankfurt. ``It also raises the moral hazard question for the ECB, whereby banks could start relying on getting cheap cash....''

....The ECB said 390 banks bid for the two-week loans at a marginal rate of 4.21 percent. Bids ranged from 4 percent to 4.45 percent.

Half a trillion dollars just to tie the banking system over for a couple of weeks. Hmmm does this sound like a healthy credit environment? Will banks be more willing to lend to each other in 2 weeks time? I doubt it.