The amount of funds that European banks sought from the European Central Bank (ECB) climbed on Tuesday to the highest level since April 2009.
The European Central Bank reported that 178 European banks requested 247 billion euros ($333 billion) in one-week loans on Tuesday. The increased demand for funding rose considerably from the previous week when 161 banks borrowed 230 billion euros ($310 billion) from the ECB.
European banks are becoming more dependent on the European Central Bank as a lender of last resort as they have seen many sources of funding dry up. The Eurozone financial crisis has led to investors trying to reduce exposure to financial institutions holding large amounts of debt from troubled Eurozone countries like Greece.
As the finances of countries like Spain, Italy and even France have come under scrutiny, investors have scrambled to reduce their exposure to these countries and their banks.
American money market funds have been pulling funds from these countries at an alarming rate over the last few months and there are even signs that European corporations are moving funds out of countries like Italy, Spain and France. As funding sources dry up, banks have been forced to go to the European Central Bank in order to finance their operations.
While the European Central Bank has been able to help the banks maintain normal operations until now, there’s growing concern that the liquidity crisis will cause the banks to reduce lending to their customers. This could slow Eurozone economic growth and exacerbate the financial difficulties facing many Eurozone countries and their banks.
