Radical plans to reboot
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Europe
's bank lending market are being studied by the European Central Bank, a senior policymaker revealed yesterday after warning that financial market tensions could wreak significant further economic damage.
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Ideas for a “clearing house” to boost the inter-bank lending market, which is at the heart of the financial system, were “potentially applicable”, said Lucas Papademos, vice-president of the European Central Bank.
An ECB-organised clearing house would guarantee lending, with the intention of overcoming mutual distrust between banks. The ECB has cut official eurozone borrowing costs by 175 basis points since early October but is frustrated that market interest rates remain high.
Such concepts have been floated in eurozone countries such as
Germany
. But Mr Papa-demos said solely domestic solutions would amount to an inappropriate “renationalisation” of financial markets.
The plan comes in spite of findings that high inter-bank lending rates could not be fully explained by banks' lack of trust. The ECB financial stability review, published yesterday, found that more than half the borrowing costs were due to risks that lending banks would themselves face a “significant liquidity shock” or sudden need for funding.
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