18 February 2013

Reuters: Core eurozone banks relying less on crisis funding

German banks' use of European Central Bank crisis funding dropped by a third in January from the previous month, a further sign that banks in the heart of the eurozone are returning to money markets after last year's credit squeeze.

Banks in countries on the periphery of the 17-member bloc still rely on central bank lending, which, while at a record-low interest rate of 0.75 per cent, is above market rates. The divergence complicates the ECB's interest rate-setting plans.

The Bundesbank data showed that German banks owed the central bank €49.5 billion ($66.1 billion) at end-January, €23.6 billion less than a month earlier, suggesting they took advantage of the first opportunity to pay back the three-year loans to the ECB, known as LTROs, on January 30. Most - €20.6 billion - of the fall came in German banks' use of longer-term facilities, which cover anything from one month to three years.

ECB President Mario Draghi said earlier this month that the financial market conditions had improved significantly and that the early repayments were "a sign of confidence". "Many banks had accessed (three-year) LTRO for precautionary reasons because they were, a year ago, uncertain about the liquidity situation - about the funding prospects. And now they are less uncertain, than they were a year ago. So, that is also a positive sign", Draghi said in a post-rate decision news conference. National central bank balance sheets showed, however, that a lion's share of funds paid back came from core countries of Germany, France and Belgium, and that peripheral countries' banks continue to rely to great extent on the central bank for funds.

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