The European Central Bank published on Wednesday details of its latest operations designed to boost interbank lending on eurozone money markets. The central bank has been providing massive amounts of euros, dollars and Swiss francs to eurozone banks to get them lending to each other again after uncertain financial conditions caused the crucial markets to freeze up.
On Wednesday the ECB said it would lend 60.574 billion dollars for one week against collateral at a fixed rate of 1.43 percent. The central bank also said it would lend a little more than one billion dollars against euros in a foreign exchange swap at the rate of 0.000322 dollars per euro, or 3.22 swap points.
A total of 42 banks requested dollar loans in exchange for collateral, while only seven bid in the foreign exchange swap operation, indicating a clear preference among eurozone banks for the former option. The foreign exchange swap will see the ECB lend 1.013 billion dollars to eurozone banks in exchange for the single European currency starting Thursday, and take them back one week later.
Respective exchange rates of 1.2003 and 1.199978 dollars per euro mean banks will pay a rate 3.22 swap points, for access to the US currency. Two other operations will see the ECB lend banks 66.806 billion euros for three months, and 41.558 billion euros for six months at the new benchmark rate of 3.25 percent.
The funds help commercial banks maintain minimum reserves needed to underpin lending to companies that make up the broader eurozone economy. The ECB and other central banks have pulled out the stops in their efforts to get interbank lending started again.
The markets froze as commercial banks became uncertain that loans to each other would be repaid owing to huge losses being suffered following the collapse of the US market for high-risk, or subprime, mortgages. Money markets determine the availability of credit for vast numbers of people around the globe, from managers trying to fund their businesses to families and students seeking mortgages and personal loans.
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