THE EU's institutions are attempting to ease tension in Europe's banking market with the European Central Bank (ECB) offering loans to euro zone banks and the European Commission expected to unveil regulatory measures.
The ECB yesterday offered euro zone banks €120 billion in a special 38-day operation with the banks saying it received 210 bids for €141.7 billion. Just over a fifth of bids (21 per cent) were awarded at a marginal rate of 4.36 per cent.
The ECB said in a statement that the special term refinancing operation will be renewed at least until beyond the end of the year, amid increased pressure expected at the end of the third quarter.
The ECB also lent banks $30 billion for one day as part of the $290 billion the US Federal Reserve has made available to counterparts around the world. The dollars were obtained from the US Federal Reserve through a reciprocal currency agreement known as a swap, and allow euro zone banks to obtain the US currency directly from the ECB.
Initially, the one-day loans were for $40 billion, but the ECB reduced that amount last week, while extending other dollar loans to a period of one week.
Meanwhile, Charlie McCreevy is expected to announce a plan tomorrow which will give national regulators an overview of multi-national banking activities and help them to co-ordinate their activities. It is also expected to also make banks hold more capital reserves against asset-backed securities and set stricter limits on how much risk banks can take on from any one source.
"We have been for a long number of years trying to get some kind of European supervisory authority for those institutions that have cross-border reach," Mr McCreevy told journalists in Dublin yesterday.
He said it was proving particularly difficult to get agreement among member states for his plan to boost cross-border regulatory oversight, because member states wanted to retain supervisory control within their own member states.
Both the European Parliament and EU member states must agree for the package to become law, which is planned to take effect at the start of 2011.
