ECB renews loan offer of $40 billion

ECB renews loan offer of $40 billion

Frankfurt: The European Central Bank on Thursday renewed its offer of $40 billion in one-day loans, and commercial banks snapped up the cash amid chronic tension on money markets.

Banks asked for more than $72 billion, the ECB said, adding that a total of 43 financial institutions had placed bids and would pay a slightly higher interest rate of 2.55% for the funds.

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

The ECB and the US Federal Reserve have established a currency swap so eurozone banks can borrow dollars directly from their central bank as markets worldwide are rocked by ongoing turmoil in the US financial sector.

Major central banks agreed last week to inject hundreds of billions of dollars into money markets that have been battered by the chronic crisis.

Since 18 September, the ECB’s dollar tenders have generally met with strong demand from financial institutions which need the cash to continue providing the credit on which business depends.

The Bank of England offered a similar amount of dollars on Thursday to British financial institutions.

In Washington meanwhile, the US Congress was wrangling over a $700 billion rescue plan designed to bail out the troubled financial industry, which is reeling under the weight of bad mortgage loans.