European stocks and the euro initially gained, and bond yields fell for euro-zone governments like Spain and Italy that had been under pressure of late. But by afternoon, equities markets were down slightly and borrowing costs for Spain and Italy rose again.
In its role as lender of last resort to banks, the E.C.B. allocated 489.2 billion euros, or $644 billion, to 523 institutions, through what are known as long-term repurchasing operations. That was well above the roughly €300 billion average estimate of analysts polled by Reuters and Bloomberg News, though estimates had been widely divergent.
The injection of three-year funds was one of the new measures announced by the E.C.B. on Dec. 8
to calm European credit markets, which have become increasingly frothy as the euro zone crisis wears on. It was the first time that the E.C.B. has extended such loans for longer than about a year. Banks will pay the benchmark interest rate, currently 1 percent.
“This reduces the tail risk of a Lehman-type situation, where banks go into the new year facing a wave of refinancing and are unable to access the market,” Jacques Cailloux, chief euro area economist at Royal Bank of Scotland in London, said.
Mr. Cailloux said the initially positive market reaction showed investors were breathing easier, but “we’ll see if this is sustained. I don’t want to downplay the importance of the E.C.B.’s action, but the euro’s problems are bigger than that, with political and economic dimensions that still need to be addressed.”
The E.C.B., as part of its effort to prevent a credit crunch, also broadened the collateral it agreed to accept in return for the loans. The central bank is even accepting outstanding loans as security, a measure designed to help smaller community banks that may lack conventional forms of collateral like bonds.
Carsten Brzeski, an economist in Brussels with ING Group, said the size of the take-up by lenders was not surprising, because “there is obvious demand for liquidity, and it’s cheap. There’s almost a free lunch out there, so even banks that didn’t need liquidity would be thinking, ‘why not be part of it?”’
Mario Draghi, the E.C.B. president, said earlier this week that helping the smaller banks was crucial because they provide most of the credit to small businesses.
The three-year loans are also designed to compensate for a dearth of longer-term market funding, at a time when banks are facing the need to roll over an extraordinarily high amount of their own debt. Banks in the euro zone must raise more than 200 billion euros in the first three months of 2012, according to data compiled by Dealogic and cited by the E.C.B.
Banks often borrow money for relatively short periods and loan it for longer periods, profiting from the difference in interest rates. But this so-called maturity transformation means that banks must continually roll over their debts. An otherwise healthy bank can fail if it is not able to raise fresh cash.
Gilles Moëc, an economist at Deutsche Bank in London, said the E.C.B. action “is very positive for the banks,” but said “the jury is still out” on what it means for embattled euro zone governments.
Strong demand at recent Spanish debt auctions, which drove down yields, suggests that banks were loading up on the debt to use as collateral for the operation Wednesday, he said.
To the extent that banks continue buying sovereign debt — something they have been trying to move away from because of the euro crisis — government financing will be easier.
Economists said it appeared that only 190 billion to 200 billion euros of the E.C.B. funds Wednesday represented new lending. Rather, Mr. Cailloux said, most of the uptake represented banks “recycling liquidity that was already in the system,” shifting from shorter maturities into three-year loans.
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