Eurozone banks seek more cash before deadline

The European Central Bank yesterday reported rising demand for central bank funds, a day before a pivotal test of the banking sector's health.

The ECB said 157 eurozone banks sought €163 billion in one-week loans in a regular operation that underpins lending to households and companies. Since mid-May, the amount of funds lent on a weekly basis has risen steadily from about €100 billion.

Today, the central bank is to reveal how much it will lend banks for three months, its last and longest operation before repayment of record one-year loans of €442 billion comes due tomorrow.

Response to the three-month operation will give a good idea of how the eurozone banking sector is faring because it is mainly banks that cannot borrow funds more cheaply on private markets that are expected to seek fresh ECB cash.

"The amount that will be rolled over will have a powerful information content regarding the health of European banks," UniCredit strategist Luca Cazzulani said.

Given an estimated €300 billion in surplus cash at present, analysts see demand of around €150 billion as a neutral level, and Mr Cazzulani said anything up to €250 billion "would be a very encouraging signal, as it would point to only limited liquidity needs."