Bloomberg News

ECB Says Overnight Deposits Surge to Record

March 02, 2012

The European Central Bank said overnight deposits soared to a record after its second allocation of three-year loans.

Financial institutions parked 776.9 billion euros ($1.03 trillion) with the Frankfurt-based ECB. That’s the most since the euro was founded in 1999 and up from 475.2 billion euros a day earlier. Banks get 0.25 percent on the deposits.

The ECB this week lent banks 529.5 billion euros for three years in the biggest single refinancing operation in its history, taking total long-term lending above 1 trillion euros. Banks received the funds yesterday and pay the average of the ECB’s benchmark rate -- currently 1 percent -- over the period of the loans. The ECB said 800 financial institutions, more than a third of the 2,267 registered to borrow from it, took part in the operation.

“Banks’ deposits are going to stay at around 800 billion euros at least for the next year,” said Laurent Fransolet, head of fixed income strategy at Barclays Capital in London. “It’s an accounting identity. Even if banks lend on the money they borrow, it would come back to the ECB.”

Economists at Barclays Capital, ING Group and Royal Bank of Scotland Group Plc estimate about 230 billion euros of the latest three-year lending was accounted for by existing ECB loans being rolled into the new facility, meaning about 300 billion euros is new cash.

‘Reasonably Satisfied’

ECB President Mario Draghi said yesterday policy makers are “reasonably satisfied” with the uptake and the number of participants in the bank’s second three-year tender, which is aimed at unlocking credit for companies and households by giving small and medium-sized banks access to funding.

In a letter to a member of the European Parliament dated Feb. 21, Draghi said the increase in overnight deposits is “not a meaningful indicator for the impact of the three-year refinancing operation on the credit provided by banks to the economy.”

“The increase merely reflects a balance sheet identity, with the increase in the ECB’s refinancing operations on the asset side of the Eurosystem’s balance sheet being necessarily reflected in banks’ holdings of liquidity on the liabilities side,” Draghi said. “The banks that have borrowed liquidity from the ECB are not the same as those that are using the deposit facility of the ECB.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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