ECB, BANKS DRAIN EXCESS CASH

Record number of banks park cash as ending woes plague market

The European Central Bank said a record number of banks took up an offer to park cash with it on Monday as financial institutions baulk at lending to each other.

The ECB said it drained €172 billion (Bt8.05 trillion) from the banking system at a fixed rate of 4.25 per cent for one day.

A record 111 banks participated in the unscheduled liquidity-absorbing operation, more than twice the 54 involved in the tender on Friday, after the ECB last week relaxed restrictions on which institutions can take part.

Commercial banks are refusing to lend to each other after the United States housing slump caused the collapse of New York-based Lehman Brothers Holdings and forced governments to bail out banks in the US and Europe.

Last week, banks borrowed the most in more than seven years from the ECB at its emergency rate as the credit crunch worsened across the region.

Yesterday's draining operation was the fourth since banks' overnight deposits with the ECB jumped to a record €102.8 billion on September
30.

From yesterday, all banks that are eligible to participate in standard market operations and fulfil additional criteria specified by national central banks are allowed to bid in these auctions.

The ECB yesterday lent banks US$50 billion (Btl.72 trillion) for one day as demand for dollars in Europe surges. Banks bid for $90.9 billion.

The ECB will provide sufficient liquidity to keep money markets working and will continue to provide cash in euros as well as in dollars,
ECB president Jean-Claude Trichet said.

Confidence in financial markets is "the most important ingredient" to ending the turmoil, he said.
The worst US housing slump since the Great Depression has pushed up the cost of credit globally. The world's biggest financial companies have posted almost $600 billion in write-downs and credit losses since the start of last year after the sub-prime mortgage market collapsed.

BLOOMBERG
Frankfurt

 

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