The European Central Bank may lend covered bonds back to financial institutions for a fee as part of a strategy that would ease banks’ access to funds. ECB policy makers will discuss the plan at their meeting in Frankfurt tomorrow, said three people familiar with the deliberations. No decision has yet been taken. An ECB spokeswoman declined to comment. The proposal comes as the ECB tries to withdraw the emergency measures used to fight the financial crisis without spooking investors concerned about Greece’s record budget deficit. While the 39 billion euros ($53 billion) of bonds held by the ECB is equivalent to just 5 percent of the total currently loaned out to banks, the new plan would give them more collateral to lodge with the ECB in return for funds. “If the ECB were to do this and it would lead to more high-quality collateral being freed up, it could certainly help the banks and the money markets,” said Julian Callow, chief European economist at Barclays Capital in London. “The worst that can happen is that no-one will want to borrow the assets.”
ECB said to discuss lending covered bonds to banks for fee
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