If you’ve been paying attention, you’ve heard for nigh on three months about how the ECB did not want to “act like the Federal Reserve” and become the “lender of last resort” to the Euro Zone banks. You’ve heard how it is not in the ECB’s mandate to do so and how the 17 different countries had all different prerogatives and the Germans don’t really care about the Hungarians and on and on and on.
But today, they’ve accepted the fact that the crisis has grown ever more expensive to clean up with every passing, dawdling week. And so finally, the ECB (de facto Germany) has taken on the mantle of lender of last resort. They will accept the toxic debt of the banks as collateral and throw money and anyone who needs it, just like the Fed did in 2008 after much hemming and hawing. Just like we all knew they eventually would.
This is the Bazooka, and it’s actually bigger than most expected it would be.
LONDON (MarketWatch) — The European Central Bank on Wednesday attempted to send a strong signal to financial markets by offering to loan $641 billion to 523 euro-area banks in a massive three-year funding operation.
The bank-funding move by the region’s central bank, known as a longer-term refinancing operation, or LTRO, is open to lenders across the euro zone. The figure came in well above a Reuters forecast for $408 billion. The loans run for three years.
The loans expand the central bank’s balance sheet by 20%, according to Louise Cooper, analyst at BCG Partners.