Wary banks boost ECB deposits; reserve change due

Mon Jan 16, 2012 5:52am EST
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FRANKFURT (Reuters) - Commercial banks parked almost half a trillion euros at the European Central Bank, the highest on record, as the mix of debt crisis worries and a recent giant injection of ECB cash left banks awash with money but too scared to lend it.

Overnight deposits at the ECB have regularly hit new records in recent weeks after the central bank's first ever offering of three-year loans pumped 490 billion euros ($620 billion) into the banking system.

ECB data on Monday showed overnight deposits reached a new high of 493 billion euros, up from the 490 billion they had risen to on Friday.

The total could climb further still. The end of the ECB's monthly reserves cycle - the point when banks have fulfilled their ECB targets and have few options to juggle their funding - is on Tuesday.

Changes to the ECB's reserves rules, which kick in on Wednesday and will mean banks have to keep less of a cash buffer at the ECB, are raising questions about future deposit levels.

The move will cut banks' reserves ratio requirements to 1 percent from 2 percent and is set to save banks 100 billion euros according to the ECB.

On one hand that could mean banks - who won't be able to repay old ECB loans early - may have even more spare cash to deposit. Alternatively, the impact may be minimal if banks react by cutting back on what they take at the ECB's once-a-week, 7-day funding handouts.

With total ECB lending at 664 billion euros, banks are now storing over 70 percent of money lent by the ECB at the central bank, compared to around a third after the collapse of Lehman Brothers back in late 2008.

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