Bloomberg News

ECB Says Overnight Deposits Surge to Highest Since July 2010

October 04, 2011

Oct. 4 (Bloomberg) -- Lenders increased overnight deposits at the European Central Bank to the highest in more than a year as the euro-region’s debt crisis intensifies.

Banks parked 209 billion euros ($276 billion) at the Frankfurt-based ECB yesterday, up from 199.6 billion euros Sept. 30. That’s the most since July 2010 and compares with a year-to- date average of 54 billion euros.

“It’s a reflection that there seems to be limited lending within the money market,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “There is less willingness to lend between banks and more willingness to lend to the ECB so banks at least get something for their money.”

European finance ministers are considering revising a July deal for a second Greek bailout, fueling concern bondholders may have to take bigger losses on the nation’s debt. Goldman Sachs Group Inc. cut its global growth forecasts and predicted recessions in Germany and France, while Standard & Poor’s said Europe faces an increased risk of a double-dip recession.

“Peaks in deposits have generally been at times of extreme stress,” Green said. “There are many variables and we don’t know where things are going to go. It’s all part of the huge uncertainty in Europe at the moment.”

Euribor-OIS

A measure of banks’ reluctance to lend to one another in Europe rose. The Euribor-OIS spread, the difference between the euro interbank offered rate and overnight index swaps, was little changed at 80 basis points as of 4:37 p.m. in London, compared with 89 on Sept. 23, the widest since March 2009.

The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, fell to 107 basis points below Euribor from 109 yesterday, according to data compiled by Bloomberg. The cost was 112.5 basis points under Euribor on Sept. 12, when the swap was the most expensive since December 2008. A basis point is 0.01 percentage point.

The one-year cross-currency basis swap was little changed at 73 basis points under Euribor.

The TED spread, or the difference between what lenders and the U.S. government pay to borrow for three months, was little changed at 38 basis points.

Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- was unchanged from 1.557 percent yesterday. One-week Euribor fell to 1.184 percent from 1.197 percent.

The three-month dollar London interbank offered rate, or Libor, rose for an 18th day to 0.381 percent from 0.378 percent, according to the British Bankers’ Association. That’s the highest since Aug. 11, 2010.

--With assistance from Jana Randow in Frankfurt. Editors: Andrew Reierson, Michael Shanahan

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net; Daniel Tilles at dtilles@bloomberg.net


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