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Banks Pay Back More Cheap Loans to ECB

Friday, 8 Feb 2013 | 6:28 AM ET
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Banks will pay back 4.993 billion euros next week of the 3-year loans they took from the European Central Bank a year ago, bringing the total payback of the first 489 billion in loans to 146 billion.

The latest repayments by 21 banks, announced by the ECB on Friday, were above the forecast of 3 billion euros from a Reuters poll of traders.

The early return of some of the 3-year funds the ECB pumped into the system in late 2011 and early 2012 to avert a credit crunch marks the beginning of an unwinding of the ECB's crisis measures - the opposite of action being taken by other central banks.

The early paybacks are voluntary and do not thus represent intentional policy tightening by the ECB.

Mario Draghi, the central bank's head, said on Thursday that LTRO repayments were a sign of confidence and added the central bank would continue to provide banks with all the cash they request.

The ECB's balance sheet has already shrunk to below 2.8 trillion euros, the lowest level since February 2012 just before the second 3-year loan offering.

Banks took more than 1 trillion euros in total in the two offerings of 3-year loans in December 2011 and February 2012. They were offered the chance to repay funds early on a weekly basis from Jan. 30 for the first tranche of 489 billion.

On Feb. 27, they will have the first opportunity for an early repayment of the second one of 530 billion euros. Banks are expected to pay 123 billion of those loans then, a Reuters poll of money market traders showed.

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