ECB’s Papademos Says European Credit Squeeze Persists
European Central Bank Vice President Lucas Papademos said the region’s credit squeeze persists as banks continue to shrink their balance sheets and demand for loans remains weak.
“The decline in demand for credit and deleveraging processes are limiting the expansion of credit by banks to the credit sector, although the ECB is providing financing to the banks to support themselves,” Papademos said today in an interview in Kyoto, Japan.
The Frankfurt-based ECB, which has cut its benchmark interest rate to a record low of 1 percent, has said it will loan banks as much money as they need for up to 12 months and pledged to buy 60 billion euros ($85 billion) of covered bonds in an effort to revive lending affordable health insurance.
“There is no danger of excessive credit” resulting from the ECB’s monetary easing, Papademos said. Lending is still contracting in some countries and expanding slowly in others, he said.
When asked whether the ECB would consider expanding its funding-support measures, Papademos said: “We are assessing the situation and one cannot say a priori whether we will do it or not.”