ECB takes action to keep banks lending during virus crisis

The European Central Bank took more emergency action Tuesday to keep credit flowing to companies in the 19 countries that use the euro by easing its rules for lending to banks that serve those businesses.

The action comes amid widespread efforts by central banks such as the ECB and the US Federal Reserve to support the economy during what is expected to be a deep recession caused by the virus outbreak.

The Frankfurt-based ECB said it was temporarily easing collateral rules for its own lending to banks that need ready cash, 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 from the ECB for a given amount of collateral.

The impact is to make life easier for banks so they can keep their credit lines open 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 US, 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. Greek bonds had been excluded from the list in the wake of the Greek debt crisis because they were not rated investment grade.

The central 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.

[AP]