Reply #93: ECB seeks to calm markets as one-year drain looms

[Ghost Dog]

PARIS/MADRID, June 29 (Reuters) - European Central Bank officials scrambled to reassure nervous markets on Tuesday that the expiry of nearly half a trillion euros of emergency loans would not hurt the banking system, though they acknowledged some individual banks might face strain.

'The ECB and Eurosystem will do what is necessary to make sure the liquidity is there,' Christian Noyer, who heads the Bank of France, told Europe 1 radio. 'There are some banks that are in a less good situation that might eventually suffer, but we will make sure that there are no problems and everything goes OK.'

On Thursday, 442 billion euros ($544 billion) of one-year loans extended by the ECB -- the first of three one-year tranches offered to commercial banks as emergency support at the height of the global financial crisis -- will expire. To offset the burden that banks will face in paying back the money, the ECB has padded the date with extra borrowing opportunities for them, including an offer of unlimited three-month funds on Wednesday. This is expected to prevent any funding squeeze in the euro zone banking system as a whole. But markets worry that some smaller, weaker banks may find it hard to cope with the shift from the security of borrowing 12-month money from the ECB to relying on loans in shorter maturities.

This concern helped push the euro to a lifetime low against the Swiss franc on Tuesday. The three-month Euribor rate, a major indicator for euro lending, rose to 0.761 percent, the highest level since last September, from 0.754 percent on the previous day.

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