ECB Lends Record $622 Billion in Bid to Ease Crisis

ECB Lends Record $622 Billion in Bid to Ease Crisis

(Source WallStreet Journal) FRANKFURT -- The European Central Bank pumped a record €442 billion ($622 billion) into euro-zone money markets Wednesday in its first-ever offer of one-year funds as it battles the Continent's recession.
Euro-zone banks borrowed the one-year funds, the largest amount the central bank has ever dispersed in a single shot, at the ECB's current key rate of 1%. Much of the total likely substituted for amounts banks had been borrowing from the ECB for shorter periods, so the net stimulus to the economy is less than it appears at first sight.
The novelty lies more in the length of time over which the ECB is prepared to offer unlimited funding, reflecting a desire to bring longer-term money-market interest rates down. Although the risk premium that banks charge each other for funds has fallen since the dramatic days of September, it still appears big enough to strain the economy.

The ECB's move signals the central bank remains committed to bolstering the euro-zone economy even as policy makers world-wide discuss how best to unwind the welter of monetary and fiscal stimulus pumped into the global economy over the course of the crisis. The ECB believes the 16-nation euro-zone economy will start growing again by the middle of 2010.

The ECB said in May that it would begin offering banks funds for one year. Before Wednesday, the longest period banks could borrow from the central bank was six months.