ECB prepares to loan 500bn euros to European banks

The European Central Bank is readying another round of low interest loans for Europe's banks that could top 500bn euros (£423bn, $673bn).

On Wednesday it will hold its second long-term refinancing operation (LTRO), an opportunity for Europe's banks to borrow money at low interest rates.

The first round was carried out on 21 December when banks borrowed 489bn euros.

The programme is credited with restoring confidence in Europe's banks.

"In some cases, time has been bought that will enable banks to work through their difficulties," said Bridget Gandy,in a reportby the credit rating agency Fitch.

But Fitch warned that for some smaller banks, it is only the ECB funding that is keeping them afloat.

"For other already low-rated banks, the long-term refinancing operation's life-support is merely stalling their demise."

The second round of loans is expected to be even bigger than the first as some banks have been reluctant to approach the ECB for fear of looking weak.

It is hoped that the funds will make banks stronger and encourage them to loan money to business and consumers.

But analysts question whether that has happened.

In its report, Fitch said: "Use to date has been predominantly to replace existing forms of funding."