In a closely watched display of its firepower, the European Central Bank on Wednesday issued to Eurozone banks another massive round of the cheap, three-year loans that have helped avert a banking crisis but have not yet revived lending to businesses and households.
Banks borrowed 529.5 billion euros, equivalent to about $713 billion, compared to 489 billion euros in December.
The ECB said that 800 banks took out loans, compared to 523 in December, as many smaller lenders took advantage of the central bank's broader collateral rules.
The ECB wanted to encourage borrowing by community banks that are likely to lend the money in turn to businesses and consumers.
Between the loan offers in December and Wednesday, the ECB has now lent banks a total of about 1 trillion euros. However, the actual amount of new money flowing to banks is closer to 520 billion euros, because many banks shifted money from shorter-term ECB loans into the three-year loans.
The loans appeared to have headed off a funding crunch that could have caused some banks to fail and many others to run short of money to lend into the Eurozone economy.
But while the wall of money has bought time for banks and governments to deal with their formidable problems, the ECB does not appear to have yet achieved its goal of reviving lending to businesses and consumers. Data released by the central bank earlier this week showed that lending growth to business remains weak.
In addition, the ECB loans have not restored the crucial interbank market, in which banks lend excess cash to each other for short periods, ensuring that capital is never idle.
The total amount borrowed was a little above expectation. Most analysts expected demand to be about the same as in December, but estimates ranged from as low as 300 billion euros and to as high as 1 trillion euros.
"In our view it is a Goldilocks outcome: not overly large as to generate concern about the fragility of the European banking system, but high enough to prefund a substantial share of maturing bank debt and spark more buying of Italian and Spanish paper," said Martin van Vliet, an economist at ING Bank, in a note to clients.
Banks could borrow as much as they wanted at the benchmark interest rate of 1 percent, but had to pledge collateral.
