Some European Banks Shun ECB Loans

Wall Street Journal
February 6, 2012

A group of top European banks is disclosing that they didn't borrow money under the European Central Bank's bank-lending program, fearful of being perceived as bailout recipients.

The ECB in late December doled out a total of €489 billion ($643 billion) in three-year loans at a 1% interest rate to 523 banks. The primary goal was to avert problems at banks that faced waves of maturing debt but didn't have access to borrow money via traditional funding markets.

The broad participation in the program, known as the Long-Term Refinancing Operation, fueled a sense of euphoria among many bank executives and investors that the worst of the Continent's two-year banking crisis was over. In a second batch of loans in late February, analysts expect the ECB to distribute as much as €1 trillion in additional funds, partly because the central bank is making it easier for banks to borrow.

But some bankers and observers are starting to warn about unexpected fallout from the ECB's loan program. A top concern among banks is that the receipt of central-bank lifelines could subject them to potential political or regulatory interference and sully their ability to declare themselves free of any outside help. That sentiment has the potential to damp demand for future ECB loans, at least among the Continent's strongest banks.

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