Spanish banks' reliance on ECB surges with €44bn borrowing

The European Central Bank has effectively funded new lending in Spain in recent months, replacing banks' use of wholesale capital markets, which have been strangled by the global credit crunch.

Spanish banks doubled their share of the ECB's weekly funding auctions in the final quarter of last year, taking their borrowing up to €44bn in December from a running average of about €20bn over the previous 15 months, according to the most recent data from the Bank of Spain.

...

While markets for securitised debt remain closed, it is difficult to put a price on European mortgage-backed securities, and banks in the region can be much slower to mark down the value of holdings of such bonds.

By accepting them in exchange for cash, the ECB may be delaying the repricing of risk that analysts believe is necessary for the orderly resumption of markets in such debt.