ECB funding to Italy banks tops 200 billon EUR

* ECB funding rises to 209.995 bln eur from 153.2 bln eur

    * ECB held first ever 3-yr liquidity tender in Dec.

    * Longer-term ECB funds to Italy banks more than doubled

 

MILAN, Jan 9 (Reuters) – Funding from the European Central Bank to Italian lenders rose sharply to nearly 210 billion euros in December as banks in the country took advantage of an unprecedented offer of longer term ECB funds, data from the Bank of Italy showed on Monday.  Reliance on ECB funding for Italian lenders has risen sharply since the end of June, when total borrowing stood at 41.3 billion euros, mirroring growing funding strains caused by the euro zone sovereign debt crisis. The ECB injected 489 billion euros at its first-ever tender of three-year funds on Dec. 21. Italian banks took 116 billion euros, securing nearly 24 percent of the total, three sources told Reuters in December. The Bank of Italy data showed that domestic banks held 160.6 billion euros in longer-term ECB funds at the end of December,more than double the 68.4 billion euros of a month earlier. By contrast, Italian lenders lowered their participation to the ECB’s main refinancing operations in December, with total funding from the seven-day tenders falling just below 50 billion euros from 83.4 billion euros at the end of the previous month.  At the end of November total ECB funding to Italian banks stood at 153.2 billion euros.

Fears that European banks will struggle to raise capital to withstand the spreading debt crisis have intensified since Unicredit priced a rights offer at a deep discount last week. The Italian bank’s shares have since lost 37 percent of their value and trading in rights to buy into the bank’s closely watched cash call have been suspended.             Domestic banks are predicted to be the main buyers of debt Italy is expected sell at an auction later this week, details of which are due to be announced on Tuesday. The Treasury will also give details later on Monday of a planned sale of shorter-dated t-bills. Yields on Italian 10-year bonds have risen above the 7 percent level regarded as unsustainable for public finances, and the country’s debt offers hefty returns for banks borrowing at ultra-low rates from the ECB. Italy’s debt sale and a Spanish auction on Thursday will provide 2012′s first major test of investors’ willingness to plough more money into the euro zone’s troubled sovereigns.  Both countries are struggling to convince investors they can raise enough cash to repay a mountain of debt due in 2012 despite low growth, weak public finances and downgrade threats.

 

Source: http://www.reuters.com

(Reporting by Valentina Za; Graphic by Scott Barber; Editing by Catherine Evans)