Eurozone Bank Fears Return As ECB Deposits Hit New Record High
January 4, 2012
In the latest sign of stress in the Eurozone’s banking sector, Reuters reports that commercial banks' overnight deposits at the ECB hit a new record high of €453 billion on Wednesday.
The increase in deposits at the central banks highlights the continued concerns/fears about interbank lending during the current debt crisis. In short, banks are not lending to each other but placing their excess reserves on deposit at the ECB instead.
The key take away from this situation is that the ECB pays only 0.25% on money kept in its coffers, whereas the interbank market rate is currently quoted at 0.396%. Thus, banks are choosing safety over return at the present time.
Reuters reports that the deposit figure topped the previous record high of just over €452 billion reached last week and represents 65% of all the money the ECB is lending banks.
It is also worth noting that European banks are flush with cash at the present time after the ECB’s LTRO facility in December lent €489 billion to the region’s banks.
Confidence in the banking sector was not helped by UniCredit’s attempt to increase capital Wednesday as Reuters reports the Italian bank was forced to discount the offering by 31% in order to raise the funds.
In addition, there are reports this morning that Spain is mulling whether or not to apply for emergency loans from the EU’s bailout fund. The newspaper report has not been confirmed and did not cite sources. However, stocks in Spain and the Eurozone have moved lower in response.
Worries over the state of the European banking industry has put a damper on the current rally in global stock markets and pushed the euro lower in early trading Wednesday.
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