RTRS:Banks take $5 billion in weekly ECB dollar operation
Dec 14 (Reuters) - Banks tripled their demand for European Central Bank-offered dollars on Wednesday in its second weekly offering since slashing the cost of borrowing dollars, making the facility much more attractive to banks and easing funding woes.
A total of 12 banks took $5.122 billion in the operation in which they were guaranteed to get all funds they requested. The tender replaces a maturing total of $1.602 billion.
The cost of the funds was 0.58 percent, and 12 banks used the dollar funding facility. Policymakers hope their action lowers lending costs also in the open markets.
Top central banks last month acted to ensure banks outside the United States have easier access to dollars, which banks in Europe have more difficulty obtaining in the market as investor concerns about their exposure to the debt crisis have grown.
The ECB now runs 7-day and 3-month dollar lending operations. In the first longer-term 3-month dollar tender banks took more than $50 billion.
The ECB also offers euro funds to banks in maturities up to 3-years, a step it announced on Thursday.
The Fed first set up dollar swaps with the ECB and the Swiss National Bank in December 2007. The facilities are unlimited.
The total use of the lines peaked at more than $580 billion in December 2008. Demand for Fed dollar swaps was high right after their reintroduction in May 2010, with $9.2 billion scooped up on May 12, all through the ECB.
However, since early June of last year demand has been muted, before a strong rise last week after the costs were cut and the worsening euro zone debt crisis added to interbank market strains.
Before the financial crisis, many foreign banks and investors had depended on money markets to borrow dollars to cheaply fund their dollar-denominated longer-term investments.
After the collapse of Lehman Brothers, they found themselves scrambling for dollars to fund these obligations, driving up the dollar against local currencies and raising the spectre of widespread defaults.
In the currency swaps, the U.S. Fed offers dollars to foreign central banks in exchange for their currencies. The foreign central banks then lend the dollars to banks in their domestic markets, enabling firms to access dollars at a time when normal financing channels have shut down. (Reporting by Sakari Suoninen; editing by Stephen Nisbet)
