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Lenders across the region have been locked out of public funding markets in recent months due to fears of a worsening of Europe’s sovereign debt crisis. However, some banks have historically been keen to avoid turning to the ECB for fear of signalling weakness to their peers.
ECB president, Mario Draghi, said last week: “We see no stigma attached to the use of central banking credit provisions: our facilities are there to be used". The ECB announced the emergency three-year loans, known as longer-term refinancing operations, or LTROs, earlier this month, in an attempt to help banks overcome €720 billion worth of funding due to mature next year.
Banks have historically been reluctant to use ECB facilities because of the perceived stigma attached to them, even though the central bank does not reveal details about individual banks’ borrowings.
Analysts' estimates have veered between €100 billion and €550 billion, with consensus now at €250 to €350 billion. Markets have also been debating how Europe’s banks will use the loans. The ECB has suggested that the facility is aimed at covering banks’ hefty financing needs next year.
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