Europe’s banks will not loan money to one another. That is a likely sign that they are too worried to make loans to businesses outside their industry. This has caused a gridlock in available capital.
It now is likely that the dependence of EU banks on the ECB as the lender of last resort will increase. Bloomberg reports that
The ECB last month lent banks an unprecedented 489 billion euros ($630 billion) for three years. Analysts said they expect demand to be just as high at a second auction on Feb. 29 because the stigma associated with using the facility is dissipating and the list of what assets can be used as collateral in exchange for the loans will be extended
The one positive aspect of the trend it that the private banks appear to be using some of the capital they get from the ECB to buy troubled sovereign debt, which has kept interest rates low–perhaps artificially and only temporarily.
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