European banks have deposited a record sum at the European Central Bank's overnight storage facility, raising doubts whether the ECB's second large-scale allotment of ultra-cheap money will reach the real economy.
Overnight deposits by banks at the ECB in Frankfurt have spiked up to a new record. The European Central Bank on Friday reported that an unparalleled 776.9 billion euros ($1.04 trillion) were parked by financial players at it overnight storage facility.
Only on Wednesday, banks absorbed a total of 529.5 billion euros in cheap three-year loans from the ECB in an operation meant to strengthen the financial system on the continent and help ease the eurozone debt crisis. The move followed a first ECB batch of 489 billion euros in ECB loans in late December of last year.
British banking giant Barcalys alone gobbled up 8.2 billion euros from this week's allotment. It said it needed the money primarily to bridge financing gaps in debt-stricken Spain and Portugal.
In the wake of the ECB's large-scale lending operation, bond yields of a number of highly-indebted eurozone governments were driven down.
Money keeps washing back
However, ECB statistics reveal that much of the money lent to banks has made its way back to where it came from, inflating the Central Bank's overnight storage facility, and that despite the fact that such deposits only fetch an interest rate of 0.25 percent.
But the eurozone's banks' trust in each other and private sector borrowers is still very low, casting serious doubts on whether the money will reach the wider economy in the form of direct loans.
For the time being, most banks are simply waiting to deploy their resources or are hoarding it in what seems the safest possible place to them.
Analysts have also voiced concerns that the ECB is incurring unnecessary risk by lending to banks that are unable to borrow anywhere else. On paper, the Central European Bank cannot give money to insolvent financial institutions. But it's been increasingly hard to tell evn for the pundits which is bank is insolvent and which isn't.
hg/ ar (dapd, Reuters, AP)