Recent measures taken by the European Central Bank to make liquidity available to eurozone banks will ease pressures in the banking system, the European Systemic Risk Board said yesterday.

“The actions taken by the ECB very recently will ease funding pressures and I think you’ll see increasing evidence of that in the next six months,” ESRB deputy chairman and Bank of England governor Mervyn King said.

The warning lights for Europe’s financial system were “flashing red,” King told a news conference following the fourth regular meeting of the ESRB.

“There is no doubt that the ESRB is concerned,” he added.

The body, which was set up to monitor and prevent systemic risks in Europe’s financial system, has already warned that the current eurozone debt crisis poses a systemic risk.

“Since then, overall conditions have worsened, as a result of the intensification of negative interlinkages between sovereign (debt) risks and the uncertainty about the resilience of the financial system, and on account of deteriorating growth prospects,” King said.

The ECB has been under intense political pressure to step in and save eurozone countries sinking under huge mountains of debt but it insists its fire-fighting efforts are limited to acting as lender of last resort for banks only and not for governments.

The ECB has consistently argued that it is up to overspending governments to get their finances in order and restore the markets’ confidence in their ability to repay their debts, which is the underlying cause of the eurozone’s current ills.

Last week, the central bank said it was extending the maturity of its loans to three years to ensure favourable rates of funding for banks over a much longer period.

On top of this, it relaxed its rules for the collateral required as guarantees and also halved the ratio of reserves that banks must hold at the ECB, also freeing up capital.

On Wednesday, banks borrowed nearly half a trillion euros on the cheap from the ECB via the new three-year lending facility.

Until now, the ECB has lent for a maximum of one year and the new arrangement is part of a series of unprecedented measures to keep credit flowing in Europe at a time when banks are increasingly wary of lending to each other due to the debt crisis.

Analysts said the three-year funds would help ease tensions in the banking system, at least in the immediate term, but they were sceptical it would provide the long-lasting boost to confidence that markets had been looking for.