European Central Bank Boosts Banks' Liquidity
The European Central Bank on Thursday announced a series of moves designed to stem the tide of the ongoing debt crisis by increasing liquidity in the region's banks. While stopping short of lowering interest rates, the ECB said it will reopen 12 and 13 month long-term lending facilities to provide capital to Europe's crippled banking system. The agency also said it would buy 40 billion euros in covered bonds, or securities backed by some form of collateral.
The ECB said it would also hold lending rates steady for banks, keeping them at current historically-low rates for the foreseeable future. While the policy moves encouraged investors, leading to markets closing higher in Europe and the US, critics were disappointed that the agency did not respond to the increased strains in bank funding markets by announcing a number of "non-standard" measures to provide liquidity for banks, thereby aiming to dilute the risks of a serious credit crunch.
European economic activity, meanwhile, is expected to be very moderate in the second half of the year, bringing the world's third-largest economy painfully close to another recession.
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