Draghi says bank repayments reflect financial market confidence

FRANKFURT Thu Feb 7, 2013 9:02am EST

FRANKFURT Feb 7 (Reuters) - Banks' early repayment of a chunk of three-year crisis loans they took from the European Central Bank reflects improved financial market confidence, but the bank will continue to ensure ample liquidity, ECB chief Mario Draghi said.

"We will closely monitor conditions in the money markets and their potential impact on the stance of our monetary policy, which will remain accommodative with the full allotment mode of liquidity provision," Draghi told a news conference, referring to the ECB meeting all banks' bids for cash.

Speaking after the ECB left its main interest rate unchanged at 0.75 percent, Draghi said banks have repaid 140.6 billion euros ($190.34 billion) of the 489.2 billion euros they borrowed in the first of the two three-year long-term refinancing operations around a year ago.

"This reflects the improvement in financial market confidence," he added, noting that repayments are at the discretion of the banks, "who must appropriately assess their funding situation, their ability to provide new loans to the economy and their resistance to shocks."

The market-driven unwinding of the crisis funding measures has fed investors' perceptions that the ECB is in a state of de facto tightening, in contrast to the looser monetary policy being pursued in the United States and Japan.

Bank-to-bank lending rates have climbed since the ECB announced on Jan. 25 that banks would repay early 137 billion euros in long-term loans - a move that has reduced the amount of excess liquidity in the financial system.

In total, the ECB pumped more than 1 trillion euros into the banking system with two offerings of three-year loans, one in December 2011 and one in February 2012 as it tried to avert a credit crunch.

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