Broke, European banks get daily injections from ECB, BoE

Europe's Central Banks Inject Additional Cash

By Joellen Perry
The Wall Street Journal
Friday, March 21, 2008

http://online.wsj.com/article/SB120601229992551599.html?mod=Homes

FRANKFURT, Germany -- European central banks flooded the financial system with extra funds in response to proliferating signs of uneasiness in markets as Germany's early credit-market casualty IKB Deutsche Industriebank AG received yet another shot of capital.

With rumors about banks' creditworthiness proliferating and banks hoarding cash ahead of the long holiday weekend and the coming end of the quarter, the European Central Bank pumped an extra E15 billion ($23.41 billion) in five-day funds into euro-zone money markets to tide financial institutions over until Tuesday. The sum comes atop the extra E25 billion in weekly loans the ECB offered earlier.

The Bank of England, meanwhile, extended the extra L5 billion ($9.91 billion) it lent to United Kingdom financial institutions Monday, saying the extra funds would stay on offer until April 9, the day before the central bank's next interest-rate decision. Also Thursday, German state development bank KfW announced it will grant troubled German lender IKB an additional E450 million in fresh capital to cover more write-downs on its assets.

Outside money markets, there was another sign of slowing growth in the euro-zone economy. The composite Purchasing Managers Index -- a measure of private-sector activity in the euro zone -- reversed February's sharp gain, falling to 51.9 in March from 52.8 a month earlier, research group NTC Economics said. A level above 50 signals an expansion in activity; below 50 signals contraction.

Activity across manufacturing and services sectors eased in France, albeit from high levels, while activity in Germany, the region's largest economy, picked up.

The ECB has been holding rates steady at 4% while the U.S. Federal Reserve has been reducing them. Many analysts argue that factors including a U.S. recession and the surging euro mean growth this year will slow more sharply than the central bank's projection. They anticipate the ECB will start cutting its key rate in June.

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