FRANKFURT, Sept 30: The European Central Bank said on Tuesday it had allotted 190 billion euros ($270 billion) in cash loans during a regular weekly operation that saw strong demand from commercial banks.

The one-week cash loans attracted bids from 419 banks, and total requests for more than 228 billion euros, an ECB statement said.

The ECB also announced a second one-day loan of $50 billion (35 billion euros) after an initial auction of 30 billion met with strong demand.

The ECB was to provide details on how much interest commercial banks would pay for the loans, along with total demand, later in the day.

In a separate move on Tuesday, the ECB renewed its one-day loans of $30 billion (20.8 billion euros) in a further attempt to keep troubled interbank money markets flowing.

In that auction, 57 banks sought a total of $77.3 billion, and paid a huge 11 per cent for the funds.

The strong interest in the loans confirmed that commercial banks were still reluctant to lend to each other on interbank money markets, which froze after the US investment bank Lehman Brothers declared bankruptcy on Sept 15.

On Tuesday, eurozone commercial banks paid an average interest rate of 4.96 per cent for the one-week euros being offered, compared with the benchmark ECB rate of 4.25 per cent.

In a separate statement to the markets, the ECB indicated that one or more banks had borrowed 15.481 billion euros on Monday via a separate mechanism, the ECB’s overnight marginal lending facility, at a fixed rate of 5.25 per cent.

Heavy use of that facility at a relatively high rate of interest was further evidence that commercial banks are reluctant to loan money to each other owing to uncertainty over each other’s credit worthiness.

The banks have thus turned to the ECB, the US Federal Reserve and other major central banks as lenders of last resort, in particular since the US investment bank Lehman Brothers declared bankruptcy on Sept 15.

The central banks have been pumping huge amounts of cash in the form of loans to ease fresh turmoil stemming from the fresh crisis in the US financial sector.

On Monday, the ECB and the US Federal Reserve agreed to double the amount of funds they have traded with each other, also known as swap lines, to a total of $240 billion.

The move will allow the ECB to provide more dollars directly to eurozone banks, which now seek the funds to shore up balance sheets at the end of the third quarter.

Some analysts question whether the central bank moves will work however, saying that commercial lenders hoard the extra cash and do not lend to each other or extend it as credit to businesses.

Rather, they are apparently using some of the funds to buy government treasury bills because they are presently considered one of the safest investments.

Calls have increased for more central bank action, including a possible concerted cut in interest rates.

Dow Jones Newswires quoted Macquarie Group strategist Rory Robertson as saying that “little else is likely to slow the negative, self-perpetuating cycle of weak financial markets and worsening macroeconomic indicators.” But the money market’s problem is a lack of liquidity, something that a rate cut would be unlikely to address.

In addition, central banks such as those in Japan and the United States have already lowered their main lending rates to levels that leave them little additional room for manoeuvre.—AFP