Emergency Borrowing From ECB Accelerates

Reuters

Borrowing from the ECB's emergency facility jumped to more than 4 billion euros, data showed on Wednesday, extending a week-long run of heavy usage in which Europe saw its first bank nationalised as a result of the bloc's sovereign debt problems.

A total of 4.16 billion euros was borrowed from the ECB's instant-access overnight facility, which charges 2.25 percent interest as opposed to the 1.5 percent banks get money for at its mainstream operations.

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Overnight borrowing first spiked above 1 billion euros on Oct. 3 as problems surrounding Franco-Belgian bank Dexia erupted.

Despite the ECB's subsequent offer last week of limit-free funding, levels have remained high.

Money market experts are likely to become increasingly unnerved if the amounts do not drop off soon. Banks will get this week's infusion of ECB cash on Wednesday, meaning they should, in theory at least, have calculated their liquidity needs and taken funds accordingly.

The amounts borrowed from the ECB have continued to creep up in recent weeks. Italian and Spanish banks are finding it increasingly difficult and costly to borrow in open markets, leaving them, like their counterparts in Greece, Ireland and Portugal, ever more reliant on the central bank for funding.

The ECB will hold its first offering of three-month dollar liquidity since May 2010 later on Wednesday. Results are due at just after 0900 GMT.

In May 2010 six banks borrowed a combined total of 1.032 billion euros. This time around traders polled by Reuters expect $5 billion to borrowed. (Reporting by Marc Jones; Editing by Catherine Evans)