FRANKFURT, Germany — Struggling banks snapped up $639 billion in cheap loans from the European Central Bank on Wednesday, a sign of just how hard or expensive it has become to borrow from one another.
The huge demand for newly available three-year loans comes as fears rise that heavily indebted European governments could default and force banks and other bond holders to take big losses.
The loans to 523 banks surpassed the $578 billion in one- year loans extended in June 2009, when the global financial system was reeling from the collapse of the U.S. investment bank Lehman Brothers. It was the biggest ECB infusion of credit into the banking system in the euro’s 13-year history.
The ECB wants banks to use the money to help pay off or refinance about $300 billion in existing loans early next year. Without the special support of the ECB, banks would have to cut back on loans to businesses and further squeeze the European economy.
While the loans will help stabilize banks and make it easier for them to lend to businesses, they do not attack the root of Europe’s financial crisis — heavily indebted governments facing unsustainable borrowing costs. Many economists believe that to solve that problem, the ECB needs to become the lender of last resort to European governments, buying up their bonds in large quantities in order to lower their borrowing costs. ECB president Mario Draghi has said governments should not depend on a central-bank bailout.
