Banks will return 7.675 billion euros ($10.46 billion) of crisis loans early to the European Central Bank next week, the ECB said on Friday, driving the amount of excess liquidity down and closer to the threshold where market interest rates could rise.
By repaying the ECB’s crisis funds early, banks also reduce the level of excess liquidity – the level of cash beyond what they need to cover their day-to-day operations – in the system.
Excess liquidity is now at 217 billion euros, close to levels seen in late 2011, which was just before the ECB flooded the market with more than 1 trillion euros in long-term refinancing operations (LTROs) to ease banks’ funding strains.
After the repayment next week the level will fall further if banks do not increase their uptake in new liquidity operations.
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