FRANKFURT, Germany (AP) ? The head of Germany's Bundesbank is warning the European Central Bank about risks involved in the massive euro529.5 billion ($712 billion) credit offering it made to banks Wednesday.
Germany's Frankfurter Allgemeine Zeitung reported Thursday that Bundesbank head Jens Weidmann wrote a letter to the ECB warning about the risks of looser rules on collateral for the loans.
The looser rules meant more banks could borrow money ? 800 banks took advantage of the loans this time around, compared with 523 the last time the credit was offered back in December. Weidmann is warning that the practice exposes the ECB and national central banks to more risk.
Neither the Bundesbank nor the ECB had any comment on the letter.
The ECB lent the euro529.5 billion Wednesday with the aim of steadying the region's financial system against the eurozone debt crisis. It follows a similar offering of euro489 billion to 523 banks on Dec. 21
This time the ECB relaxed its rules to allow a wider circle of assets that could be offered up to central banks as collateral in return for loans. This was a move aimed at getting smaller banks to join in the credit offering.
The ECB wants to make sure banks have enough funding to do business so that the flow of credit is not restricted in the wider economy.
The mass infusion of credit ? estimated by Commerzbank analysts to be some three times the theoretical normal cash needs of the banking system ? has led to a general easing of market tensions brought on by the debt crisis. Banks have been able to issue bonds, and borrowing costs have fallen for indebted governments as they roll over their debt loads.
But the Bundesbank ? guardian of Germany's conservative approach to monetary policy ? has made increasingly skeptical comments about the program. Weidmann has warned that overly generous liquidity could lead to banks investing in risky assets. He said last week in a speech in Mexico City that "the crisis cannot be solved solely by throwing money at it." Indebted governments needed to tackle the root causes of the crisis by closing budget deficits and by reforming their economies so they grow faster.
Weidmann sits on the 23-member ECB governing council.
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