The European Central Bank said it will lend dollars to one euro-area bank tomorrow. The ECB today allotted $500 million to one bidder in a regular seven-day liquidity-providing operation at a fixed rate of 1.09 percent. Last week, the Frankfurt-based ECB also lent $500 million to one institution. The ECB doesn’t identify the banks it lends to. The spreading sovereign debt crisis in Europe has heightened concerns about banks’ balance sheets, causing financial institutions to become reluctant to lend to each other. Global equity markets rallied after the ECB said on Sept. 15 it will coordinate with the Federal Reserve to offer a series of three-month dollar loans to euro-area banks to ensure they have enough of the currency for the rest of the year. The premium European banks pay to borrow in dollars through the swaps market is close to the highest level in almost three years. The cost of converting euro-based payments into dollars, as measured by the one-year cross-currency basis swap, was 98 basis points below the euro interbank offered rate, or Euribor, at 11 a.m. in Frankfurt, indicating a premium to buy the greenback. It widened to as much as 112.5 basis points earlier this month, the most since Dec. 2, 2008, according to data compiled by Bloomberg. European banks need dollars to fund their own lending in the U.S. as well as to clients elsewhere doing business in the world’s leading reserve currency. To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net

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