ECB to Lend Banks 498 billion Euros for Three Years; Much More Than Expected

“The European Central Bank will lend euro-area banks a record amount for three years and more than economists forecast in an effort to keep credit flowing to the economy during the sovereign debt crisis.

The Frankfurt-based ECB awarded 489 billion euros ($645 billion) in 1,134-day loans, the most ever in a single operation and more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which will be lent at the average of its benchmark rate – – currently 1 percent — over the period of the loans. They start tomorrow.

“It was obviously an offer the banks could not refuse,” said Laurent Fransolet, head of fixed income strategy at Barclays Capital in London. “It shows the ECB is not out of ammunition and it gives banks security on liquidity for a few years. On the other hand it means banks will rely on the ECB for longer.”

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