European Central Bank President Mario Draghi (R). Photo: Reuters, Ralph Orlowski
European Central Bank President Mario Draghi (R). Photo: Reuters, Ralph Orlowski
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European Central Bank bonanza buoys periphery banks

Bank stocks surged, but don’t expect this to help the economy

March 23, 2017 8:22 PM (UTC+8)

The European Central Bank gave out EUR 233 billion in long-term low-interest loans. More than 10% of the total, or EUR 24 billion went to Italy’s largest bank Unicredito. This was the largest distribution under the ECB’s long-term lending facility since it was established. European bank stocks surged, reaching their highest level since December 2015.

The weakest banks – the Italians and Spanish – are the best performers over the past week. Not that any of this will benefit the European economy: bank lending in Italy continues to shrink (down 2.2% in 2016) as well as in Spain (down 4% in the 12 months through January 31). Banks will use the ECB’s largesse to finance carry trades in government bonds. Higher-yielding European sovereigns rallied on the news.

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