ECB overnight deposits rise as banks remain wary of lending

22nd August 2011, Comments 0 comments

The amount of cash deposited by commercial banks overnight with the European Central Bank spiked last week, ECB data showed Monday, a sign that they may be increasingly reluctant to lend.

ECB data showed commercial banks parked 107.2 billion euros ($154.4 billion) in the central bank's deposit facility on Friday, up from 90.5 billion euros on Thursday.

While the amount remained well below the year-high of 145.2 billion euros in early August, it is nonetheless a substantial amount for banks to deposit at a rate of 0.75 percent, which means they forego earnings rather than lend it to other banks at the current going rate of around 0.89 percent.

According to Lena Kormileva, a strategist at Brown Brothers Harriman quoted by Dow Jones Newswires, the figure shows that "the ECB's intermediation (in the money markets) remains broken.

"Banks are hoarding cash due to systemic risks," which are expected to grow further, she argued.

On August 11, the ECB launched an exceptional six-month loan operation that saw 114 eurozone banks request a total of 49.8 billion euros.

However, pumping cash into interbank lending markets might not ease financing problems for those banks considered most at risk of being unable to repay their loans.

© 2011 AFP

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