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Spain banks' ECB borrowing eases in August

Source: Reuters - Tue 14th Sep 2010

Spanish banks' borrowings from the European Central Bank (ECB) fell in August after the release of stress tests at the end of July showed a largely healthy banking sector.

Bank of Spain data showed that borrowing by the country's banks eased to 126 billion euros from a record high of 140 billion euros in July.

Still, August's figure was still way above the 91 billion euros borrowed in April before Spanish banks' access to credit tightened as fears grew it could be the next country to slide into a Greek-style debt crisis.

"It is a bit of a relief, but overall it's still a substantial part of overall borrowing and shows Spanish banks are still reliant on the ECB" said Nick Matthews, economist at RBS.

The total borrowed was 110 billion euros taking off the amount banks redeposited at the ECB, down from 130 billion in July, and around a quarter of the total lent by the ECB.

The fall in lending may have reflected some relief in the wake of stress tests, Matthews said, but banks remain under scrutiny and markets have questioned the severity of the tests.

Five small Spanish banks failed the Europe-wide bank stress tests on July 23.

Analysts believe borrowing will remain at high levels for some time. On Sunday, new Basel III rules were published governing the amount of capital that banks must hold to withstand shocks. Only a few of Spain's banks will need to raise more capital.

The ECB made it easier for banks to access funding by extending in September its unlimited 1-week, 1-month and 3-month loans last week until at least mid-January.

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