European Central Bank Steps in as Lender of Last Resort….Again

As reported by Financial Times:

The European Central Bank on Wednesday loaned commercial banks €75bn ($104bn) for three months, a sign that institutions in the money market remain wary of lending to each other for periods of more than a week.

The Frankfurt-based central bank said 140 banks had applied for €139bn in central bank deposits, agreeing to pay an average interest rate of 4.52 per cent as compared with current interbank prices of 4.75 per cent.

The size of the refinancing operation shows how worried commercial banks remain that the crisis in the US mortgage market could yet render fellow institutions in the money market unable to repay loans.

It chimes with remarks by US Treasury secretary Henry Paulson that, even as short-term lending normalises, the crisis of confidence in the credit markets could last longer than any recent financial crises.