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 International News  >  BUSINESS
Posted: Monday 16 January, 2012 at 12:20 PM

Banks' deposits at ECB hit another record

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FRANKFURT (AFP)
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    (Frankfurt, DEU) - Banks' deposits with the European Central Bank have hit yet another record, data showed on Monday, suggesting ongoing tension in the financial system despite unprecedented liquidity injections.

     

    Banks in the eurozone put 493.3 billion euros ($623.7 billion) on deposit for 24 hours at the ECB overnight Sunday, topping the record set Friday of 489 billion euros.

     

    Since December new records for deposits have regularly been set, seen by some as a possible sign of market tensions since the money deposited earns interest 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 Frankfurt-based ECB rather than take the risk of lending it to each other.

     

    The phenomenon appears particularly significant because it comes after eurozone banks borrowed nearly half a trillion euros from the ECB last month in a brand-new three-year lending facility.

     

    Concerns have been raised that instead of lending the money on to businesses, the banks have preferred to park the cash at the ECB instead for fear of possible default.

     

    ECB chief Mario Draghi last week insisted that the central bank's liquidity measures were proving effective in tackling the debt crisis and had so far helped to avert a credit crunch.

     

    Standard and Poor's, which on Friday downgraded the debt of nine of the bloc's nations, praised the ECB action for avoiding a collapse in market confidence and relieving the pressure on banks.

     

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