The development flies in the face of the European Central Bank’s recent decision to launch a fresh round of stimulus to prod eurozone banks into lending and shore up the single-currency bloc.
Banks across the eurozone have started to purchase their own governments’ bonds for the first time since the single-currency bloc’s debt crisis broke out in 2014, The Financial Times reports.
The newspaper cited European Central Bank (ECB) sources as saying that in a bid to increase their sovereign debt holdings, the eurozone banks “bought a net €1bn of their domestic government’s debt in the 12 months to January”.
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The sources warned that the tendency may finally lead to a so-called “doom loop”, in which eurozone banks hold too great a share of state loans on their balance sheets, such as the situation which preceded the 2014 debt crisis.
The development follows the ECB’s announcement about another programme to stimulate bank lending in the eurozone and push back the timing of its first rate hike.
“A new series of quarterly targeted longer-term refinancing operations (TLTRO-III) will be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years”, the ECB said in a statement on Thursday.
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The goal is to provide the eurozone with TILTRO loans at cheap rates in order to prompt lenders to grant better credit conditions to customers, which is in turn expected to stimulate the real economy.
ECB President Mario Draghi, for his part, also singled out a series of external risks as the reason for the new stimulus package.
“The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment,” Draghi pointed out.
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The ECB’s decision comes amid increasing concerns about the Eurozone’s economy, which reportedly continued its lowest pace of growth in four years during the final three months of 2018.