ECB hopes loan plan will create ‘credit multiplier’

The European Central Bank is hoping a new round of long-term loans will be used by banks to drive down borrowing costs — a substitute for an asset-purchase scheme of its own which would avert a potentially damaging internal split.

The ECB unveiled the loans plan last month as part of a package of measures to breathe life into a sluggish eurozone economy, where inflation is running far below the central bank’s target and there is a dearth of credit to smaller firms.

Presented as a means to foster bank lending to businesses, the scheme is in fact a hybrid programme that also offers banks access to cheap funding for four years with which they can buy financial assets.