BERLIN (AP) - Euro area banks stepped forward Friday to make the first of what's expected to be ‚?¨137.2 billion ($183 billion) in early repayments on the cheap, three-year emergency loans they received from the European Central Bank.
The ECB launched an unprecedented ‚?¨1 trillion ($1.3 trillion) loan operation at the end of 2011 and in February 2012, in an attempt to relieve stress on banks at the height of the debt crisis in the group of the 17 European Union countries that use the euro.
The ECB's aim was to ensure lenders had enough cash to do business so the flow of credit to businesses wasn't squeezed. The loans have been credited with easing the region's debt crisis, not least by easing fears that one or more shaky banks might fail.
Banks were given the option to pay back the loans early, with the repayment window opening at the end of January. Analysts have been eager to see how many banks would do that, as it would give an indication whether parts of the eurozone's financial system were returning to health.
The central bank said Friday that 278 lenders will make early repayments on Jan. 30. The expected total is on the low end of economists' forecasts for repayments that ranged from ‚?¨100 to ‚?¨200 billion. In keeping with the ECB's usual practice, the central bank identified neither the lenders repaying early, nor the countries they come from.
As well as helping banks, the loans provided indirect relief to heavily indebted countries, such as Spain and Italy, which were facing high borrowing costs in bond markets. Flush with cheap credit from the ECB, banks bought government debt. That raised bond prices and lowered bond interest rates, which equated to lower borrowing costs for the struggling countries.
The ECB lent ‚?¨489 billion to 523 banks in late December 2011 at what was then its current interest rate of 1%, and another ‚?¨529.5 billion to 800 banks at the end of February last year.
The ECB's benchmark interest rate has since been lowered to 0.75%, meaning banks can now get short-term funding from the central bank at an even cheaper rate.
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