Take-up at the ECB's new three-year tender should be reasonable and could be high, with money market funding tensions likely to increase if Standard & Poor's goes ahead with a threatened downgrade of most eurozone countries. The European Central Bank will next week offer banks the longer-term funds - with the option of repayment after 12 months - in attempt to ease the credit squeeze that has resulted from the eurozone debt crisis.
Analysts have yet to state their predictions for take-up at the tender, which will be held on December 21, but a Reuters poll of money market traders puts demand at 100 billion euros, although forecasts from the 18 polled ranged from 20 billion euros to 250 billion. "There will probably be a lot of demand but the question is whether it is new money or shifting out of existing operations," said Commerzbank rate strategist Christoph Rieger.
Banks face a 700 billion euro wall of funding redemptions next year, according to the European Banking Association, most in the first half, which is likely to underpin demand for the longer-term cash while clarity over the ECB's liquidity provision plans should clear the way for banks to allocate collateral to the operations.
"The array of liquidity measures by the ECB should avert any bank funding accidents for the time being," BNP Paribas credit strategists said, but they added that the central bank's decision not to expand its sovereign debt purchase programme meant sovereign funding was still riddled with uncertainty. Banks are already awash with liquidity, with 335 billion euros of spare cash parked at the ECB overnight but the dysfunctional money market was reflected by one or more other banks borrowing over 7 billion euros at penalising rates from the ECB's overnight lending facility. The protracted use of the facility throughout the third quarter has raised concerns over whether banks have enough collateral to access the ECB's liquidity providing tenders, and the amounts borrowed from it have risen in December.
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