ECB renews one-day loans of 50 billion dollars

(FRANKFURT) - The European Central Bank renewed on Friday loans of 50 billion dollars (36 billion euros), in what has become a regular effort to keep cash flowing on distressed interbank money markets.

The results of the ECB's three-day offer which extends until Monday, including demand and the rate at which the dollars are lent, were to be released later in the day.

A similar overnight operation on Thursday had seen banks submit requests for a total of more than 67 billion euros, and paying 2.75 percent for what was on offer.

A short time later, the ECB said it would withdraw up to 220 billion euros (305 billion dollars) from eurozone money markets at its benchmark rate of 4.25 percent in what it calls a fine-tuning operation.

When the central bank determines there is surplus cash in interbank markets it siphons the necessary amount off to prevent an excessive money supply from fuelling inflation and to maintain rates near its benchmark levels.

Now that the fourth quarter has begun, commercial banks do not seek to maintain such large cash reserves, and the ECB has already carried out two such operations this week, withdrawing 173 billion euros on Wednesday and 200 billion more on Thursday.

Commercial banks generally lend and borrow cash from each other on interbank markets but these have dried up since the US market for high-risk, or subprime, mortgages collapsed more than a year ago.

The ECB and other major central banks have been pumping huge amounts of cash in the form of loans to ease turmoil stemming from the latest crisis in the US financial sector, after the investment bank Lehman Brothers went bankrupt last month.

Some analysts question whether the central bank moves are working however, saying that commercial lenders soak up the extra cash but do not lend to each other or extend it as credit to businesses.

They reportedly use some of the funds to buy government treasury bills because they are presently considered one of the safest investments.