ECB bank funding programme falls short of projections

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A European Central Bank measure designed to stimulate the EU economy has seen a low initial take-up by banks from the Eurozone. The cheap loans to banks have been designed to encourage lending and strengthen the economy, but most banks declined to accept the cheap liquidity offer; with only €82.6bn used by 255 banks out of a total of €400bn.
A European Central Bank measure designed to stimulate the EU economy has seen a low initial take-up by banks from the Eurozone. The cheap loans to banks have been designed to encourage lending and strengthen the economy, but most banks declined to accept the cheap liquidity offer; with only €82.6bn used by 255 banks out of a total of €400bn.

Banks may be wary of taking up the loans before impending ECB health checks of the banking sector, or banks may be waiting for separate ECB measures due in October, analysts said.

‘The fact that banks have borrowed a small amount suggests that they have little intention of increasing their lending, either because of their own risk aversion, a lack of demand for loans, or most likely both’ said Jennifer McKeown of Capital Economics. ‘We maintain our view that a broader programme of asset purchases, or quantitative easing, will be needed to get the economy going and avert the risk of deflation.’

As a result of this low figure, it now more likely that the central bank’s council would need to enact a programme of sovereign bond purchases to lift inflation, which drifted down to just 0.4 per cent in August.