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The cost of converting euro-based payments into dollars, as measured by the three-month cross-currency basis swap, dropped 18.25 basis points to 80.25 basis points below the euro interbank offered rate, or Euribor, at 4:20 p.m. in London, indicating a lower premium to buy the greenback, according to data compiled by Bloomberg. The one-year basis swap fell seven basis points to 63.80 basis points.

The Frankfurt-based ECB said today that it will coordinate with the Federal Reserve and other central banks to conduct three dollar liquidity-providing operations with a maturity of approximately three months. The loans are in addition to the bank’s regular seven-day dollar offerings and will be conducted as fixed-rate tenders with full allotment, the bank said. It will offer the loans on Oct. 12, Nov. 9 and Dec. 7.

“The dollar funding situation has caused headaches for some banks,” said David Schnautz, a fixed-income strategist at Commerzbank AG based in London. “The ECB’s measures help ease those problems. It will be interesting to see if there is more to come.”

Basis swaps allow banks to borrow in one currency, while simultaneously lending in another.

ECB Loans

The ECB’s measure is a “really big deal,” according to Dartmouth College Professor David Blanchflower. “The fact that these central banks have acted together and said we’ll backstop banks is really big news,” Blanchflower, a former member of the Bank of England’s Monetary Policy Committee, said today at the Bloomberg Markets 50 Summit in New York.

A gauge of banks’ reluctance to lend to each other in Europe fell for a third day as Germany and France said they saw a future for Greece as part of the euro region.

The Euribor-OIS spread, the difference between three-month Euribor and overnight indexed swaps, was at 77 basis points, from 79.6 yesterday and 84.6 basis points on Sept. 12, which was the highest level since March 2009.

Two banks this week borrowed dollars from the ECB in its seven-day operation, a sign they are finding it difficult to access the U.S. currency in markets as Europe’s debt crisis makes financial institutions more wary of lending. The ECB yesterday allotted $575 million in its seven-day dollar operation, without naming the banks it lent to.

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Esteban Duarte in Madrid at eduarterubia@bloomberg.net

To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net; Paul Armstrong at Parmstrong10@bloomberg.net