It has now become a truism that the ECB's commitment to the irreversibility of the euro last summer and the subsequent introduction of the OMT programme have 'saved' Europe.

The strong rally in risk assets over the last six months is no doubt largely attributable to the central bank's verbal intervention. But today we received a reminder that Mario Draghi's earlier example of unconventional monetary policy also had a considerable effect on the eurozone's financial system.

Back in the last months of 2011, the continent's banks were weighed down by very real concerns about asset quality and weak capital positions, primarily as a result of the sovereign debt crisis. This in turn led to fears that many banks would run into liquidity problems. Spreads widened dramatically, and the Markit iTraxx Senior Financials index hit 343bps on November 24 -a record.

Draghi took radical action by introducing two separate three-year long-term refinancing operations (LTROs). Prior to this, the longest LTRO had been for 12-months. The first three-year LTRO allotted on December 21 saw 523 banks borrow €489 billion; the second on February 29 saw 800 banks tap the facility for €529 billion. These are gross figures; some of the funds were rolled from other short-term ECB facilities. Banks used the funds for a variety of reasons, but the main effect was a much needed injection of liquidity into the financial system.

Today was the first opportunity for banks to repay funds borrowed from the first three-year LTRO. The figures published by the ECB seem to show that they have seized it with alacrity. Next week a total of 278 banks will repay €137.2 billion, significantly above the consensus estimates of around €80 billion. The high number of banks was above expectations.

The results appear to be a strong positive signal for the eurozone' banking sector. The first LTRO was largely used by banks in the periphery; the high number of participants today suggests that many of these institutions are confident enough in their liquidity position to avoid the 'stigma' of relying on the LTRO.

However, bank CDS spreads were strangely unmoved by the news. The Markit iTraxx Senior Financials was just 2bps tighter at 135bps. Italian and Spanish banks might have been expected to rally, but they were more or less unmoved after the announcement.

So, what could explain this apparent market apathy? The most likely reason is that, despite the three-year LTRO repayments, banks in the periphery are still reliant on the ECB for funding. They may simply be switching into the central bank's shorter-term facilities - the three-month LTRO and the one-week MRO (main refinancing operations). If this is the case, then the reduction in excess liquidity may be significantly less than first appeared.

It is probably too early to tell whether banks in the periphery really are repaying the three-year LTRO before schedule. They have the option to make repayments on a weekly basis from January 30, and the second three-year LTRO will come into play on February 27. We should have a better idea in a few weeks, when the ECB publishes the results of the shorter-term facilities. Nonetheless, even though peripheral bank spreads have tightened sharply in recent months, it seems unlikely that institutions in the region can fund cheaply and easily enough to dispense with the crutch of the ECB.

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