ECB to offer banks €111bn in loans

THE European Central Bank (ECB) said it will lend banks €111.2 billion for six days to help them cope with the expiry of its landmark 12-month loan.

The Frankfurt-based ECB said 78 banks asked for the six-day funds at the benchmark interest rate of 1%.

Banks yesterday needed to repay €442bn in 12-month loans, the biggest amount ever awarded by the ECB.

Banks asked for €131.9bn in three-month loans on Wednesday, less than economists expected.

Yesterday’s allotment “is a reasonably big number”, said Laurent Bilke, an economist at Nomura International in London.

“Together with Wednesday’s operation, the funding needs come in on the high side of estimates. However, the banks that are overly reliant on the ECB are on the periphery of Europe, it’s not stress across the board.”

European banking stocks fell, led by Bank of Ireland and Austria’s Raiffeisen International Bank Holding AG.

Europe’s sovereign debt crisis made financial institutions wary of lending to each other, complicating the ECB’s withdrawal of non-standard stimulus measures used to fight last year’s financial crisis.

While the ECB no longer offers banks 12-month loans, the debt crisis has forced it to reintroduce unlimited lending in its three- and six-month refinancing operations and to start buying the bonds of big-deficit governments.

Yesterday European stocks dropped to a five-week low after reports that showed manufacturing growth slowed in China and the US and more Americans unexpectedly applied for jobless benefits.

Daimler AG, the world’s second-biggest maker of luxury cars, and HeidelbergCement AG led declines in shares tied to economic growth. BHP Billiton Ltd, the largest mining company, and Xstrata Plc slid more than 3% as metal prices fell.

Chloride Group Plc retreated 4.1% after ABB Ltd abandoned its pursuit of the British company.

The Stoxx Europe 600 Index sank 2.5% to 237.3, the lowest close since May 25. The benchmark gauge for European equities has retreated 13% from this year’s high on April 15 and posted its first quarterly decline in more than a year in the three months through June amid concern that Europe’s debt crisis may derail the economic recovery.