Europe's energy firms are in a financing crunch, but the ECB won't provide liquidity to them even as it probes risks to banks

Christine Lagarde, president of the European Central Bank, said that the bank wouldn't approve short-term cash injections for energy firms.

Energy companies that hedge their sales in futures markets have been hit hard by rising power prices. It is estimated that the margin is close to $1 trillion. Lagarde said that the EU governments must step in.

She said it was important that fiscal measures be put in place to provide liquidity to solvent energy market participants. The national central banks of the Euro-system are ready to provide liquidity to banks, not to energy utility firms.

Lagarde said that the European Central Bank could help clearing members for utility companies, but wouldn't provide direct financing.

She said energy companies should seek stability from governments and policymakers should prop up firms.

The central bank is talking to financial institutions about their readiness for a potential wave of defaults in the energy market.

The report states that the European Central Bank wrote to banks in August asking them to assess the impact of natural gas shortages. The responses to the inquiry are due this month.

Fears of a Lehman Brothers moment for the energy sector have arisen due to Russia's cuts to natural gas supplies to Europe.

The Energy Markets Financing Scheme was launched by the UK Treasury and the Bank of England.