THE EUROPEAN CENTRAL BANK has flipped its credit tap wide open to help Europe’s troubled banking system, allowing hundreds of nervous banks to take out a record €489 billion in cheap loans.

The move is the biggest ECB infusion of credit into the banking system in the 13-year history of the euro. It aimed to keep the Europe’s debt crisis from choking off credit to businesses — since a credit crunch could cause a continent-wide recession that would make it even harder for eurozone countries to repay their massive debts.

Many European banks are also having trouble borrowing normally from other banks — everyone is afraid they won’t get paid back because the banks they are lending to may have large amounts of risky European government bonds.

The ECB loans to 523 banks surpassed the €442 billion in one-year loans issued in June 2009, when the global financial system was reeling from the collapse of Lehman Brothers.

Today’s credit offering, dubbed a ‘Longer-Term Refinancing Operation‘, let banks load up with as much cheap liquidity, or ready money, as they think they need – without having to worry about paying it back until early 2015.

The LTRO was the first of two three-year credit offerings that the ECB has planned.

The ECB hopes banks can use the credits to help pay off some €230 billion in bonds maturing in the first few months of 2012. Otherwise, banks would have had to find that money by cutting back on loans to businesses.

Many economists think that the eurozone is already heading toward at least a mild recession — figures Wednesday showed that Italy, the eurozone’s third-largest economy, contracted 0.2 percent in the third quarter.

The deeper the economic slowdown is in the eurozone, the more tax revenues may suffer — and the harder it will be for Europe’s indebted governments to handle their debt loads.

Stock markets in Europe and the US fell Wednesday after the ECB released news of the loans.

The FTSE 100 index of leading British shares closed down 0.6 per cent, while Germany’s DAX fell 1 per cent. The CAC-40 in France ended 0.8 per cent lower.

In Dublin, the ISEQ index of Irish shares was up just under 1 per cent.

The euro similarly gave up early gains, and was trading 0.6 per cent lower at $1.3038.

- David McHugh and Greg Keller