FRANKFURT (Reuters) - Banks will return 3.365 billion euros ($4.66 billion) in long-term crisis loans to the European Central Bank next week, less than expected but more than this week as banks trim down their reliance on ECB funding and return to the markets.
The amount banks will repay on May 14 is more than this week's repayments of 1.75 billion euros, and below the 6 billion forecast in a Reuters poll.
Banks are voluntarily offloading the crisis loans they took from the ECB in late 2011 and early 2012 in anticipation of Europe-wide bank stress tests, which will over the next couple of months check how the lenders hold up under certain scenarios.
The tests are part of a broader balance sheet review done by ECB before it takes over as bank supervisor in November.
The repayments have reduced the amount of spare cash in the system to levels that have started to put upward pressure on overnight bank-to-bank lending rates. EONIA has shot above the ECB's main rate of 0.25 percent several times now.
Excess liquidity, which is the measure of money that banks have beyond what they need for their day-to-day operations, stood at 77 billion euros on Friday, having hit 180 billion euros earlier in the week as banks adjust their funding.
ECB President Mario Draghi pointed out on Thursday that recent volatility in short-term money market rates had not spilled over into the medium-term and that more liquidity in the EONIA market was to some extent a positive sign as banks were going back to the market and fragmentation was receding.
"In other words, banks rely less on the ECB and more on each other," Draghi said in the post policy meeting news conference.
On Friday, the ECB said six banks would repay 2.609 billion euros from the first LTRO on May 14, and four banks would pay back 0.756 billion from the second LTRO.
(Reporting by Eva Taylor)