ECB: 4.993 Bln In Three-Year LTRO Funds To Be Repaid Feb 13

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The European Central Bank said Friday that E4.993 billion in three-year long-term refinancing operation (LTRO) funds will be repaid at the third early repayment opportunity next Wednesday.

A total of 21 banks have told their respective national central banks they intend to repay funds from the first LTRO allotment, the ECB said.

E140.7 billion has already been repaid in the previous two weeks out of 489.2 billion in three-year loans allotted December 2011, according to the ECB. In the first week, 278 banks returned funds, in the second only 27 banks.

Mostly, banks have not rolled over three-year loans into shorter-term central bank lending but have reduced their reliance on ECB funds instead. Some market participants are concerned that as the ECB continues to let its balance sheet shrink - the first major central bank to do so - this could continue to drive up money market rates and along with them the euro.

ECB President Mario Draghi on Thursday played down the impact of the early return of three-year funds, telling reporters the ECB expects "well over E200 billion" of excess liquidity to remain from the LTRO operations even after the next round of repayments. The central bank remains in full allotment mode and stands "ready to offer liquidity to the banking system as needed", he added.

The three-month Euribor rate, the main gauge of unsecured bank-to-bank lending, fell to 0.227% Friday morning from 0.232% early Thursday.

Going forward, banks will have the opportunity to repay additional LTRO funds each week, on a day that coincides with the settlement date of a main refinancing operation. Counterparties must inform their respective national central bank, giving one week's notice of the amount they wish to repay.

The ECB will release details of the repayments on the last business day of each week. Banks that borrowed from the ECB's second three-year LTRO on February 29, 2012, will have the opportunity to repay early starting on February 27 of this year.

There has been some speculation that the total sum repaid then could exceed the amount of the first repayment opportunity on the first LTRO, as many of the healthier banks from core countries made use of the second operation.

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