The euro fell after the ECB announcement to $1.3452 at 1:45 p.m. in Frankfurt from $1.3471 beforehand. Italian and Spanish bonds rose on bets the ECB loans will be used to buy the nations' debt. The yield on Italy's two-year note fell 21 basis points to 2.15 percent.

European bank stocks rose, with the 43-member Bloomberg Europe Banks and Financial Services Index up 1.3 percent at 12:48 a.m. in London. Bank of Ireland, Italy's UniCredit SpA and France's Credit Agricole SA were among the biggest gainers. The Stoxx Europe 600 Index increased 0.4 percent.

Today's loans are the biggest single refinancing operation in the ECB's history and take total three-year lending above 1 trillion euros. The ECB lends banks as much as they want against eligible collateral. More than a third of the 2,267 financial institutions registered to borrow from the ECB took part.

“Clearly there is no sign of stigma here,” said Michel Martinez, an economist at Societe Generale in Paris.

Too Good to Refuse

Banks that shunned the first loans for reputational considerations may have concluded “it was an offer they couldn't refuse after all,” said Martin van Vliet, an economist at ING Group in Amsterdam. The ECB's move to encourage take-up by increasing the pool of collateral banks can use to obtain the funds also appears to have worked, he said.

Before the December operation, the ECB reduced the rating threshold for certain asset-backed securities. This month, it said seven of the 17 national central banks in the euro area will also accept credit claims, which ECB President Mario Draghi estimated would increase the collateral pool by another 200 billion euros. The aim is to give small and medium-sized banks greater access to ECB cash.

Economists at Barclays Capital, ING Group and Royal Bank of Scotland Group Plc estimate about 230 billion euros of today's lending is accounted for by existing ECB loans being rolled into the new facility, meaning about 300 billion euros is new cash. That exceeds the estimated 193 billion euros of fresh lending in the first three-year tender.

The funds cost the average of the ECB's benchmark interest rate — currently at a record-low 1 percent — over the period of the loans and banks have the option of repaying them after a year.

The euro-area economy is forecast by the European Commission to contract 0.3 percent this year as the debt crisis prompts governments and consumers to cut spending. The ECB's loans are intended to relieve liquidity strains and grease the flow of credit to households and businesses, boosting growth.

“There's a big difference between stopping the rot and starting a recovery,” said Steve Barrow, head of Group-of-10 research at Standard Bank Plc in London. The loans “might have done the first, but they won't do the second,” he said.

Royal Bank of Scotland economist Nick Matthews said while the ECB's liquidity provision “helps keep tail risks for European banks at bay in the near term,” the loans “do not address the underlying solvency issues, and ultimately funding stresses can quickly return.”

Sarkozy Trade

A byproduct of the loans has been the so-called “Sarkozy trade,” where yield-hunting banks use some of the cash to buy sovereign bonds — an idea first floated by French President Nicolas Sarkozy.

Since the first three-year loans were awarded on Dec. 21, the yield on Spanish two-year bonds has fallen to 2.28 percent from 3.6 percent and the Italian equivalent has dropped from 5 percent. The Euro Stoxx 50 Index of stocks is up 9 percent this year.

No further three-year operations are scheduled and ECB officials have indicated they would be reluctant to offer a third tranche.

“If number one was a success and number two was a success, that doesn't mean there has to be number three,” ECB council member Ewald Nowotny said on Feb. 27.

In the wake of the first operation, the ECB's balance sheet ballooned to a record 2.74 trillion euros. That prompted German council member Jens Weidmann to warn that the central bank mustn't “lose sight of its mandate” to control inflation by taking on “excessive risks.”

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