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ECB holds a special on loans

Marketplace Staff Dec 18, 2007


Megan Williams: Some banks overseas are getting a pick-me-up today that’s a little more tangible. For two weeks, the European Central Bank is offering unlimited loans at below-market interest rates. From Europe, Megan Williams reports.

Megan Williams: The cost of banks in Europe borrowing money just dropped to 4.21 percent. The below-market rate now offered by the European Central Bank is all part of its drive to cut the cost of lending between retail and commercial banks.

Two weeks ago, that rate went up to nearly 5 percent. The goal is to get it down to 4 percent. By injecting cheaper cash into the European banking system, its central bank hopes to make more credit available to businesses to keep the economy from slumping further.

Deutsche Bank head economist Thomas Mayer says the move may stave off a credit crunch, but it isn’t risk-free.

Thomas Mayer: Risk is that central bank money gradually becomes an ever-more important source of funding for the commercial banks, and that’s not what we want. We want the commercial banks to conduct business in the markets.

Many European banks have been hit hard by the defaults on mortgages in the U.S., and have been loathe to extend credit.

I’m Megan Williams for Marketplace.

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