The European Central Bank said today that it would lend commercial banks nearly €97 billion for a year as the ECB winds up an unorthodox measure taken to bolster financial markets.
The 12-month loan of central bank funds was the last of three since June, when the ECB loaned €442 billion to over 1,100 banks at a fixed rate of 1%, the largest single such operation by the central bank ever.
The amount borrowed by 224 banks today - €96.937 billion - was noticeably more than the €75 billion taken up during the ECB's second one-year operation in late September.
This time around the interest paid by banks will depend on the average of that used during the ECB's regular refinancing operations over the coming year, so commercial banks do not know exactly how much they will be charged.
That is meant to discourage speculative borrowing of cheap central bank funds that banks could then invest at higher rates elsewhere, earning profits through what are known as carry trades.
Refinancing operations allow banks to obtain funds needed to maintain minimum reserves that serve as a foundation for their lending activities.
Banks must provide collateral for the central bank money, often sovereign or highly-rated corporate bonds.
The ECB will terminate six-month loans following one in late March as it begins to implement an 'exit strategy' from exceptional measures enacted to prevent a meltdown of the euro zone financial sector.
The moves were decided after a collapse of the US investment bank Lehman Brothers in September 2008 threatened to bring interbank lending markets to a halt.
ECB policymakers must be careful however to withdraw monetary stimulus that is no longer needed while continuing to underpin an uncertain recovery in the 16-nation bloc.
