A feeding frenzy on cheap European Central Bank funding, led by Italian banks such as Intesa Sanpaolo
Some 800 banks, including the financing arms of several carmakers, took advantage of Wednesday's 529 billion euros ($710 billion) of cheap money.
Italian banks took more than 130 billion euros, a source said, and their Spanish rivals were expected to have borrowed heavily too.
It is good for the short term in that it alleviates any immediate liquidity problems, said Andrew Lim, banking analyst at Espirito Santo in London.
But for the long term, banks are becoming increasingly dependent on state funding, they are storing up an issue for later when they have to revert to more expensive wholesale funding.
The ECB promised to provide as much cheap cash as was needed, and banks took broadly what had been expected, lifting total demand from a first offer in December and this second tranche to 1.02 trillion euros.
Intesa Sanpaolo, Italy's biggest retail bank, took 24 billion euros, raising its total from the two offers to 36 billion euros.
The bank said part of the cash would be used to buy Italian government bonds, fulfilling an objective of the ECB to boost demand for sovereign bonds and reduce troubled countries' borrowing costs.
The move can also offer banks a quick profit.
Smaller Italian peers UBI
Banks dismissed any stigma which might be attached to taking the central bank cash -- on offer at an attractive 1 percent annual charge -- and were less coy than in December in admitting they had done so.
We do not blush to say we bid for 11 billion euros in the first tender and now we shall ask for a similar amount, said Francisco Gonzalez, chairman of Spanish group BBVA
Spanish and French banks were estimated to have each taken around 100 billion euros on Wednesday. Spain's Banca Civica
Much of the uptake will have been to replace shorter term funding, and the net liquidity injection from the two offers is probably about 600 billion euros, according to Matt Spick, analyst at Deutsche Bank.
Banks had about 725 billion euros of bonds maturing this year, according to Thomson Reuters data.
METHADONE FOR JUNKIES
But some banks held back, and executives and investors reckon the stronger banks should show they can stand on their own feet.
The ECB funds were like methadone for junkies, said a senior European banker, who asked not to be named.
Launching the LTRO was a good idea but it does raise the question of what happens in three years time when this needs to be refinanced, said Peter Sands, chief executive of Standard Chartered
I am concerned that we have seen an unprecedented degree of central bank intervention and it's not clear what the exit strategy is, nor what the long-term consequences are. There are potential risks to financial instability from the degree of scale of central bank intervention, Sands said.
Demand was swollen by far more banks taking part, with 800 firms taking cash, up from 523 in December.
It included banks from outside the euro zone which can use subsidiaries based in the single currency area. Britain's Lloyds
Some large corporates, particularly carmakers, with their own banking arms are likely to have taken cash. BMW
(Additional reporting by European bureau; Editing by David Cowell)