ECB negative interest rate loans
Posted: June 18th, 2020, 12:46 pm
In response to the pandemic the ECB is providing loans to banks at negative interest rates of minus 1% whilst maintaining its main deposit rate at minus 0.5%.
https://www.ft.com/content/132f875c-c821-4045-bf2b-6615b55f2b83
Banks rush to borrow record €1.3tn at negative rates from ECB
Central bank offers ultra-cheap loans to prevent pandemic becoming credit crunch
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The ECB said on Thursday that banks had applied to borrow €1.31tn under its main refinancing scheme, which will lend them money over three years at ultra-cheap rates as low as minus 1 per cent, providing they meet certain lending thresholds.
Given the ECB’s main deposit rate is minus 0.5 per cent, the ultra-cheap lending is effectively a subsidy for the banking system and provides further evidence of how the ECB is pulling out all the stops to try to prevent the pandemic causing a credit crunch.
The banks are due to use about €765bn of the ultra-cheap loans to repay earlier ECB loans that are about to mature. But they are expected to use much of the remaining €543bn to buy bonds issued by their own governments — earning them an instant profit on the “carry trade” between the negative rate from the ECB and the higher yield on government bonds.
https://www.ft.com/content/132f875c-c821-4045-bf2b-6615b55f2b83
Banks rush to borrow record €1.3tn at negative rates from ECB
Central bank offers ultra-cheap loans to prevent pandemic becoming credit crunch
.
.
.
The ECB said on Thursday that banks had applied to borrow €1.31tn under its main refinancing scheme, which will lend them money over three years at ultra-cheap rates as low as minus 1 per cent, providing they meet certain lending thresholds.
Given the ECB’s main deposit rate is minus 0.5 per cent, the ultra-cheap lending is effectively a subsidy for the banking system and provides further evidence of how the ECB is pulling out all the stops to try to prevent the pandemic causing a credit crunch.
The banks are due to use about €765bn of the ultra-cheap loans to repay earlier ECB loans that are about to mature. But they are expected to use much of the remaining €543bn to buy bonds issued by their own governments — earning them an instant profit on the “carry trade” between the negative rate from the ECB and the higher yield on government bonds.