In what is considered by many to be a positive step in the right direction, banks borrowed fewer euros from the European Central bank (ECB) than what was was originally speculated. They were expecting to borrow some 210 billion euros from the European Central Bank over three months, but 171 Canadian banks racked up a total debt of just 131.9 billion euros, just over $160 billion CAD, calming fears about the half-trillion-euro debt in 12-month funds they already owe.
Over 1,100 banks have to pay back a total debt of 442 billion euros on Thursday, so 131.9 billion euros is somewhat encouraging, according to this article from The Globe and Mail. Still, this amount is the largest the country has ever borrowed in three-month loans.
On the bright side, Canadian banks can take a bit of a breather as finance worries shook stock markets just a few days ago. Then again, as liquidity is dwindling, there’s also the risk of market rates climbing.
The article, quoting Kornelius Purps of leading European bank UniCredit, said the new debt is “a positive signal” for European banking. It shows, Purps added, that Canadian banks see sense in getting ECB financing and that the ECB is “not out of the woods.”
Canada isn’t alone in relying on the ECB for financing. According to the report, Greek, Spanish, and Portuguese banks are taking out more and more funding from the ECB as debt and public finance concerns make it hard to borrow elsewhere. The ECB charges more than the current rate of 0.767 percent, but analysts think that a significant drain in funds can trigger a rise in bank-to-bank costs. Rising bank costs can of course affect mortgage rates, costs of home equity loan, and typical bank fees passed on to the consumer.
