ECB's Trichet-may take time for lending to pick up

MUNICH, Germany, July 13 (Reuters) - It may take time for the European Central Bank's massive liquidity boost to translate into extra bank lending, ECB President Jean-Claude Trichet said on Monday.

Trichet urged banks to remember their responsibilities to lend to firms and households, but said they also had to digest the record 442 billion euros in 12-month funds provided late last month. Forcefully addressing the toxic assets still poisoning banks' balance sheets was also necessary for normal credit flows to revived both in the United States and the euro zone, he said at a seminar at the University of Munich.

Trichet said the ECB funds would help euro zone banks resolve the mismatch between investments and funding on their balance sheets, improve their liquidity planning and encourage them to provide additional credit to the real economy. "It may take some time, however, for the extra liquidity to be transformed into credit," he said, noting that overnight deposits at the ECB had soared. [ID:nFAT006728]

"Banks will have to gain experience in using the longer-term credit that they obtain from their central banks to expand their longer-term assets rather than increase the availability of short-term liquidity. We remind banks of their responsibility to continue to lend to firms and households at appropriate rates and in suitable volumes."

Trichet said he was confident the ECB's program of buying covered bonds would help support financial markets. The ECB has so far announced purchases worth 66 million, out of a total pool of 60 billion euros.

"The purchase programme started last week and will be conducted gradually, stretching well into next year," he said.

"We are already seeing a number of new issuances of covered bonds and a degree of compression in the spreads in this important segment, which might have an influence also on other financial markets."

The ECB kept interest rates on hold at a record low of 1 percent earlier this month and analysts see no change until well into next year. [ECB/INT] (Reporting by Sakari Suoninen, writing by Krista Hughes; Editing by Toby Chopra)