ECB takes action to keep banks lending during virus crisis

The European Central Bank took action Tuesday to support lending to companies across the 19-country eurozone by easing rules for banks that tap the central bank for ready money.

The action comes amid widespread efforts by central banks such as the ECB and the U.S. Federal Reserve to keep the economy supplied with credit so that businesses can weather a devastating period of shutdowns, travel restrictions and social distancing.

The Frankfurt-based central bank said it was temporarily easing collateral rules for lending to banks, meaning banks can now use a wider range of financial assets as collateral for short-term central bank credit and would get more money loaned for a given amount of collateral.

The impact is to make life easier for banks so they can keep lending to companies and have less reason to restrict credit by calling in or not making loans. Banks are key for the European economy because they provide most of the financing for companies, in contrast to the U.S., where borrowing on financial markets is more common.

The ECB also restored Greek government bonds to the approved collateral list, opening up credit for banks in Greece that hold them. They had been excluded from the list after the Greek debt crisis because they were not rated investment grade.

The bank has already announced an 870 billion-euro ($950 billion) program of bond purchases to support the economy through the end of the year, as well as easing requirements.

(image credit: AP)