Key euro zone bank-to-bank lending rates dropped on Friday as banks received almost half a trillion euros in the European Central Bank's first-ever injection of 3-year liquidity. In the first of two opportunities to get the 3-year money, the ECB allotment of 489 billion euros to euro zone banks, which receive the funds on Friday.
It is the ECB's latest and most dramatic attempt so far to bolster banks' finances, in a move it hopes will minimise the chances of banks responding to the euro zone turmoil by slamming the brakes on lending. Three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, fell to 1.404 percent from 1.410 percent as a flood of new cash entered the financial system.
Longer-term rates also fell. Six-month rates ticked down to 1.658 percent from 1.662 percent, while 12-month rates eased to 1.988 percent from 1.995 percent. Shorter-term one-week rates - most heavily influenced by excess liquidity, which jumped to 483 billion euros according to Reuters calculations - fell to 0.853 percent from 0.861 percent.
Overnight rates fell to 0.509 percent from to 0.611 percent. The recent intensification of the euro zone debt crisis has left a growing pack of banks virtually locked out of open funding markets and reliant on the ECB. On Thursday, the European Systemic Risk Board said the dangers facing Europe's financial system had continued to worsen over the last three months.
In response the ECB has already reinstated some of its most potent crisis-fighting tools. But banks still appear to distrust each other and prefer to deposit their money at the ECB's overnight facility than lend to each other. Latest figures show banks deposited 347 billion euros at the central bank. Emergency overnight borrowing also remained high at above 6 billion euros.