A 3 month Longer Term Refinance operation or LTRO (love these abbreviated 'butnut' terms) rolls off on the 1 July 2010. The fear is that poor quality collateral held at the European Central Bank may not appeal to EU banks to actually withdraw security with the ECB (a counter-party credit risk = fear). Thus forcing liquidity in the Euro Zone to freeze up, as the offset of collateral held will not be sufficient when a 'rolloff' of the 3mth LTRO takes place; as cheaper funding may be sought elsewhere.
Basically in summary, EU banks may using the ECB as a safe deposit box for crappy quality assets, in tune with market rates still high such as the US$ LIBOR (interbank rate), would mean that the ECB may struggle to refinance in commercial paper which it holds on behalf of EU banks = liquidity crunch if the ECB can't swing a refinance job on the 1st July 2010
There is a great article on Zero Hedge, link here.
Also Asian banks particularly Japanese and Korea central banks such as the BoJ and BoK, have both followed similar paths to the ECB in collecting poor quality commercial paper for refinancing operations. Clip here
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