Banks have increased use of the European Central Bank's marginal lending facility, taking it to three-month highs in a possible sign of growing tensions on interbank lending markets, ECB data showed today.
Commercial banks borrowed €4.06 billion for a day from the ECB yesterday, up from just €147m on Tuesday, at the facility's stiff rate of 2.25%.
This was the highest level since May 10, when banks borrowed €4.56 billion and came as financial markets worldwide were in turmoil on concerns the US and euro zone debt crisis will bring a new recession, with the banks posting savage losses.
The ECB's refinancing rate, which serves as a benchmark for banks lending among themselves, currently stands at 1.5%.
The rise in use of the marginal lending facility yesterday, with figures published the next day, suggested that markets had become tense on rumours that Société Générale faced problems because of its exposure to Greek debt. The bank has denied the rumours.
ECB bond buys 'short-term' - official
A top European Central Bank official says the bank will keep buying Italian, Spanish and other euro zone government bonds until a new financial rescue system is ready to take over.
'As soon as the European Financial Stability Facility receives the means it has been promised, then there will be no reason for the ECB to be in the market,' Central Bank of Luxembourg governor Yves Mersch said in an interview released by his office to be published in Friday's Wall Street Journal.
'We are in a short-term implementation vacuum,' he said of the wait for a deal reached by euro zone leaders at a July 21 emergency summit to be enacted. Governments are trying to speed up ratification of the deal to make changes to the €440 billion EFSF, a rescue fund set up after a first Greek bail-out in 2010 that has since provided emergency loans to Ireland and Portugal.
The fund is to contribute to a second Greek bail-out of around €160 billion, and take over bond-buying on secondary markets with new powers enabling it to step in before crises build up on commercial money markets.
Trading Irish bonds now less expensive
Clearing house LCH.Clearnet has lowered the additional margin required on Irish government bonds, after recent falls in the interest rate demanded by investors for Irish bonds.
LCH.Clearnet cut the margin to 65% from 80%. Irish 10-year government bond yields have fallen to around 10% from more than 14% in July.
The company had been raising the margin as Irish yields climbed, making it more expensive to trade Irish bonds. Today's move will make trading slightly cheaper, as traders must put up less money up-front.
Clearing houses sit in the middle of a transaction, taking on the counter-party risk when two members trade.