European Central Bank opens $10 billion window to calm credit market

Mumbai: The European Central Bank will offer banks up to $10 billion for 84 days to facilitate lending among commercial banks even as euro zone banks toughened lending norms for households and firms because of slowing economic growth.

Banks made it harder to borrow money in the second quarter of 2008, for the fourth quarter in a row, although easier financial market conditions have started to free up the flow of funds, an ECB survey showed.

Commercial banks expect to tighten lending norms further in the next few months, according to the ECB's quarterly report on bank lending. The survey of over 100 banks showed the number of lenders reporting tighter credit standards for corporate and mortgage loans in the second quarter was lower than in the first quarter.

The Frankfurt-based central bank said commercial banks should submit bids submitted by 9:30 am Frankfurt time on 11 August. Successful bidders will receive the funds on 14 August at a fixed rate ''equal to the marginal rate of the simultaneous Fed tender."

On 30 July the ECB said it will conduct bi-weekly operations, alternating between operations of $20 billion of 28-day maturity and operations of $10 billion of 84-day maturity. Central banks in the US, the UK, Switzerland and Canada are coordinating dollar liquidity since December to lower money-market rates.

The ECB intends ''to continue the provision of US dollar liquidity for as long as the Governing Council considers it to be needed in view of the prevailing market conditions," the ECB said in the statement.

The euro tumbled on Friday by almost three cents to $1.5004, its lowest level against the dollar since February, amid evidence that the European economy was slowing.

The Italian economy shrank in the second quarter, weakening the sentiment further and the ECB is likely now to cut than raise interest rates.