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Spanish Banks Seek Safety in ECB Funds .

Source: Wall Street Journal - Fri 14th Jan 2011

The amount of European Central Bank funding requested by Spanish Banks increased in December for the first time in 5 months, according to a report issued by the Bank of Spain earlier today.

The report revealed how €66.99 billion in average net funding from the ECB was given to the banks during last month, up from €61.138 billion the month before, and similar to the level in October. Including funds placed in ECB deposit facilities, Spanish banks drew gross funds of €69.98 billion from the ECB in November.

Net ECB funding for all banks in the Euro-zone decreased to €404.27 billion last month from €409.03 billion the month before.

Concerns over Spanish banks' exposure to overvalued property has been a major issue for international investors recently and has made it almost impossible for most Spanish lenders to finance themselves in international markets.

ECB borrowing by Spanish banks peaked during the summer months, reaching a record in July of €130.21 billion. It has since fell away as lenders have sought alternative funding.

Bankers say that while it remains difficult to find longer term funding from debt markets, the commercial paper market and other short-term markets such as the repurchase market remains open to Spanish lenders.

ECB funding carries a significant stigma because of the central bank's status as a lender of last resort. Sharp increases in ECB lending to a country is therefore an indicator of stress in the local banking system.

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