ECB renews one-day loans of $50 billion

ECB renews one-day loans of $50 billion

Frankfurt: The European Central Bank (ECB) renewed on Wednesday one-day loans of $50 billion, in an ongoing attempt to keep cash flowing on troubled interbank money markets.

The results of the offer, including demand and the rate at which the dollars will be lent, were to be released later in the day.

On Tuesday, the ECB offered two one-day loans of $30 and $50 billion, with the first drawing heavy demand and setting a steep rate of 11%, while the second was undersubscribed and saw the rate plunge to 0.5%.

Wednesday’s operation appeared to be an attempt to find the appropriate middle ground.

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

The ECB and other major central banks have been pumping huge amounts of cash in the form of loans to ease turmoil stemming from the latest crisis in the US financial sector, which began when the investment bank Lehman Brothers went bankrupt last month.

On Monday, the ECB and the US Federal Reserve agreed to double the amount of funds they have traded with each other, also known as swap lines, to a total of $240 billion.

The move will allow the ECB to provide more dollars directly to eurozone banks.

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

Rather, they are reportedly using some of the funds to buy government treasury bills because they are presently considered one of the safest investments.