Banks' deposits at ECB hit record high

4th January 2012, Comments 0 comments

Banks' deposits with the European Central Bank have hit a new record high, data showed Wednesday, suggesting that lenders remain reluctant to lend to each other amid ongoing market tension.

Banks put 453.18 billion euros ($591 billion) on deposit at the ECB for 24 hours Tuesday, breaking a previous record set last week for the facility of 452.03 billion euros, the central bank said.

Rising levels of deposits at the ECB are seen as a sign of market tension since the money deposited earns an interest rate of 0.25 percent, much less than the rate available on the interbank market.

Thus, heavy use of the facility suggests banks favour parking the money at low interest with the ECB rather than lending it to each other.

Analysts surveyed by Dow Jones Newswires said the new record was due to banks opting to hoard their excess funds at the ECB after borrowing under its new three-year lending facility.

The ECB agreed last month to loan a record 489.2 billion euros to 532 banks in a three-year refinancing operation in a bid to avert a possible credit crunch.

© 2012 AFP

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