FRANKFURT (Dow Jones)--The European Central Bank said Wednesday that it allotted $552 million at its weekly dollar term auction, up from $500 million last week, indicating that European banks continue to struggle for access to dollars amid the ongoing debt crisis.
Two banks requested dollar liquidity this week against ECB-eligible collateral at a fixed rate of 1.08%, up from one bank last week, ECB data showed. It didn't identify the institutions.
Demand for the facility indicates dollar funding for banks remains tight on the interbank market.
The data comes after European banks' short-term dollar funding costs hit a near-three year high Tuesday. The three-month basis swap--the rate banks pay to exchange borrowed euros into dollars--reached minus 121 basis points, the highest level since December 2008.
U.S. banks have grown reluctant to lend to European banks because they fear their European partners may be exposed to the sovereign debt woes of Greece and other countries in the euro zone.
To ensure ample dollar liquidity, the ECB and other central banks in June extended their swap lines with the U.S. Federal Reserve until August 2012. In September, the ECB joined with the Fed and other major central banks to offer three long-term dollar tenders this year.
European banks need dollars to fund loans to U.S. companies and consumers and to repay their own dollar debts, such as loans from U.S. money-market funds.
-By Tom Fairless, Dow Jones Newswires; +49 69 2972 5516; tom.fairless@dowjones.com
