U.S. News

ECB Allots 275 Billion Euros in Main Refinancing Operation


The European Central Bank provided more cash Tuesday for banks that have been clamoring for money, injecting $370.3 billion in its normal weekly refinancing.

The most recent action followed a Bank of Japan decision Tuesday to lend another 800 billion yen ($7.01 billion), which followed a trillion-yen injection the day before. The Reserve Bank of Australia lent banks 4.57 billion Australian dollars ($3.64 billion) Tuesday, after the U.S. Federal Reserve said Monday it had placed another $3.5 billion into the banking system.

The Bank of England, meanwhile, lent 314 million pounds ($622.3 million) directly to an institution -- the first time it has made an emergency loan since the start of the subprime crisis and the resulting credit crunch.

Central banks worldwide have injected billions into money markets this month to calm nervous investors.

Still Seeking Cash

The ECB said the 275 billion-euro allotment announced Tuesday was about 46 billion euros  more than it had estimated, in part because banks that use the euro are still seeking extra cash.

Despite that, Tuesday's cash infusion was significantly lower than the ECB's tender last week, when it lent 310 billion euros, and also less than the 292.5 billion euros it lent the week before.

The Bank of England said an institution it did not identify sought access to the standing facility, which had last been used on July 17, when an anonymous financial institution tapped the bank for 109 million pounds. The standing facility uses a penalty interest rate, or 1% above the benchmark interest rate, of 5.75%.

The credit crunch started with rising defaults in U.S. subprime mortgages, or home loans made to people with weak credit histories. It has spread because banks have repackaged risky loans with the more reliable, and sold them to a wide range of investors.

The effects have been felt in Europe, especially in Germany, where state-owned wholesale bank Landesbank Sachsen has said it would need a 17.3 billion euro credit line from other banks to help it counter risk from exposure to the U.S. subprime credit business.

That exposure -- along with the troubles at IKB Industriebank AG, which came under the aegis of several banks to help protect its 8.1 billion euros exposure to U.S. subprime mortgage securities -- has riled investors and markets.