Eurozone banks park record amount of cash with ECB

3rd June 2010, Comments 0 comments

Eurozone banks have parked a record amount of cash in the European Central Bank's overnight deposit facility, figures showed on Thursday, underscoring spreading interbank tensions.

The total amount of 320.37 billion euros (394.60 billion dollars) beat the previous record of 316.41 billion euros set one day earlier.

The amount demonstrates that commercial banks would rather place excess funds with the ECB and earn interest of 0.25 percent rather than loan them to peers at higher rates.

Banks normally exchange surplus cash with each other on interbank money markets to help fund regular operations, but have again become wary of each other's ability to repay loans.

"People are getting nervous," ING senior economist Carsten Brzeski told AFP.

A similar situation prevailed after the US investment bank Lehman Brothers collapsed in September 2008, but the amount deposited with the ECB has now surpassed levels seen then.

"Here is a clear indication to me that the credit crisis in Europe is continuing," Mark Grant, managing director at Southwest Securities, said in a research note.

"The situation is not letting up."

Banks have become risk averse owing to a pervading sense of uncertainty about the health of Europe's economy and prospects for its single currency.

"For the time being, the ECB will need to continue with taking over a money market function," Brzeski said.

-- Dow Jones Newswires contributed to this report --

© 2010 AFP

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