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 Banks deposit record amount overnight at ECB

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PostSubject: Banks deposit record amount overnight at ECB   Tue Jan 10, 2012 10:09 am

....Banks deposit record amount overnight at ECB
AP – 2 hrs 27 mins ago....Email
Germany (AP) — Banks in the countries that use the euro held a record
amount of money overnight at the European Central Bank in a sign of
stress in the financial system from the eurozone debt crisis.

region's central bank said Tuesday that overnight deposits from Monday
hit euro481.93 billion ($613.4 billion) — beating the previous record of
euro463.56 billion from the day before.

The high deposits mean
banks are keeping spare cash in a safe place at a low interest rate
rather than lending it one another on a short-term basis. This move has
sparked fears of a further credit crunch across Europe as banks become
wary about lending funds for fear they will not be paid back.

deposits also reflect large amounts of cash put into the banking system
by the ECB in its efforts to steady the system. An ECB offer of
emergency three-year loans resulted in euro489 billion being taken up by
more than 500 banks in late December.

The climate of anxiety
means that some of that loaned money — on which the ECB currently
charges 1 percent annual interest — is washing back into the ECB
overnight deposit facility even though it only earns 0.25 percent.

government debt crisis has put intense pressure on the banking system,
because banks typically hold government bonds. Fears that a heavily
indebted government may default — and cause losses on those bonds — has
left many banks viewed as poor credit risks and unable to borrow from
any one but the ECB.

Additionally, many banks have bonds coming
due in the first months of the year and will need cash for that if they
cannot sell new bonds to pay off the old ones.

political leaders are still working on measures aimed at containing the
crisis. Governments have yet to agree on a proposed treaty to toughen
limits on future debt, and are trying to raise an additional euro150
billion to backstop financially troubled governments through the
International Monetary Fund. Greece is negotiating with bondholders
about a 50 percent write-off of their investments, a step aimed at
getting the country's heavy debt load down to a sustainable level.

sovereign debt uncertainties still unresolved and banks facing heavy
bond redemptions in the first months of the year, it is not difficult to
understand why banks remain risk-averse and prefer to hoard liquidity,"
Marco Valli, chief eurozone economist at UniCredit, said in a note to



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