Banks have drastically reduced the money they'd been holding at the European Central Bank's overnight storage facility. The move came on the back of the ECB decision last week to cut its rate to zero for such deposits.
The European Central Bank (ECB) reported on Thursday lenders across the continent had withdrawn huge amounts of money from its overnight storage facility. The news came after the ECB had decided to cut its rate for overnight deposits to zero in a bid to boost inter-bank lending.
Wednesday was the first day under the zero-yield setup and figures published by the ECB showed banks only left 325 billion euros ($397 billion) in the facility, well down on the 800 billion euros left there on the previous day.
As banks now get nothing for parking money overnight at the ECB, a return to more significant lending between financial institutions in the eurozone could seem a likely scenario, as banks are forced to look for more profitable options beyond the central bank.
No cure of the symptoms
But reluctance to provide loans to other lenders is still very high because of fears that nothing will be repaid amid a raging eurozone debt crisis. Even ECB President Mario Draghi considered the rate cut to be nothing more than a symbolic gesture, saying that the move would have little impact on what investors would do with their spare cash.
An ECB money market contact group of top traders even concluded the rate cut could push banks out of Europe after seeing their profitability options narrowed down further.
Hours after the ECB's overnight storage facility was left half-empty, it's too early to say where lenders may invest their extra cash. But while the ECB's facility may no longer be such a cozy place for them to park resources, the rate cut certainly hasn't changed the reasons why banks have been so afraid of granting loans to others.
hg/msh (dpa, AP, Reuters)