LONDON |
LONDON (Reuters) – The European Central Bank’s offer of cheap long-term cash is an attempt to prevent a rapid bank deleveraging shock rather than U.S.-style money printing that will filter through to the real economy and leach into other markets.
Italian and Spanish government bonds may benefit a little from newly flush banks buying them. But the money is most likely to be used to help ease banks’ immediate refunding needs – they need to sell up to 3 trillion euros of assets to deleverage and meet strict new regulatory capital requirements.
On the other hand, the fact that a credit crunch has been averted and deleveraging can now happen more smoothly removes twin potential threats to Europe’s struggling economy.
And the ECB’s three-year ultra-cheap loans may ease a wave of capital outflows by U.S. money market funds from European banks, which has gummed up interbank lending.
The borrowing of 490 billion euros by over 500 banks – the largest
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