Friday, October 7, 2011

ECB Offers New Emergency Support To Banks

The European Central Bank is lending an unlimited amount of short term loans to banks to keep the region from entering a credit crunch like the one that started the recession two years ago. The 12 to 13 month loans provided to the banks by the ECB will help European banks to keep lending between banks possible. The ECB is also buying euro40 billion ($53 Billion) in covered bonds in an effort to help banks raise funding.

The government debt crisis from Greece has exposed European banks to threatening losses and shaky finances. It is essential for daily business for banks being able to borrow between each other. However, the fear  is that the money being borrowed will not be repaid. These fears have become reality for Franco-Belgian Bank Dexia, who was bailed out once before and is now struggling again to raise funds to pay its debts.

The Eurozone economy has only grown 0.2 percent resulting in the worst crisis since WWII. Consumer and business spending is suffering due to lower incomes, higher taxes and governments having too much debt that will not be able to be paid.

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