ECB says liquidity measures proving 'effective'

(FRANKFURT) - The European Central Bank's recent measures making unprecedented amounts of liquidity available to eurozone banks are proving effective in tackling the debt crisis, ECB chief Mario Draghi said Thursday.

"We have seen several... positive developments. The more time that passes since we had the first three-year long-term refinancing operation, the more we see signs that it has been an effective policy measure," Draghi told a news conference here after the central bank held its key interest rates unchanged.

He was referring to the decision last month to make unlimited amounts of liquidity available to eurozone banks at super-cheap rates for a period of three years, the longest-ever refinancing operation ever conducted by the ECB.

The ECB announced the move along with a number of other special liquidity measures to avert a credit crunch. And eurozone banks queued up in their hundreds to borrow nearly half a trillion euros via the new facility when it was launched just before Christmas.

Nevertheless, there has been concern that instead of lending the money to businesses, the banks have preferred to park the cash at the ECB instead for fear of possible default.

But Draghi insisted this was not the case.

"We really see evident signs that this money does not stay in the deposit facility, this money circulates in the economy," he said.

"By and large, the banks that have borrowed the money from the ECB are not the same that are redepositing the money with the ECB."

The move provided banks with "an insurance against the risk of being without liquidity," the ECB chief argued. "It also gave banks time to appropriately manage ... their liabilities in a more effective way."

Draghi said that data on lending "do not so far suggest that the heightened financial market tensions led to a sizeable curtailment of credit in the euro area as a whole" up until November.

And the provision of additional liquidity "will continue to support euro area banks, and thus the financing of the real economy," he said.

"The extensive recourse to the first three-year refinancing operation indicates that our non-standard policy measures are providing a substantial contribution to improving the funding situation of banks, thereby supporting financing conditions and confidence," Draghi said.