ECB lending surges to record $1 trillion for second day running
ECB President Jean-Claude Trichet speaking this week. Photo: PHILIPPE DESMAZES/AFP/Getty Images
The European Central Bank's lending to financial institutions surged to a record, breaching the $1 trillion mark for a second day, after it pumped extra cash into the banking system to ease a funding gridlock.
The Frankfurt-based central bank said its outstanding euro loans to banks jumped to €828.4 billion ($1.05 trillion) yesterday, the largest amount ever, from €773.8 billion a day earlier. At the same time, banks deposited a record €244.9 billion with the ECB overnight in a sign they remain wary of lending to each other.
''Banks are comfortable in the knowledge that they can tap the ECB for as much money as they need,'' said Juergen Michels, an economist at Citigroup Inc. in London. ''But rather than loaning excess cash to other banks, they give it back to the ECB on deposit. They still don't trust each other.''
Lending between banks ran dry after Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15, shattering confidence among lenders and sending borrowing costs to records. Money- market rates in London are falling after governments bailed out banks and central banks intensified efforts to encourage lending with cash injections. The ECB has also signaled it's ready to follow its emergency interest-rate cut on Oct. 8 with another reduction next week.
The euro interbank offered rate, or Euribor, that banks charge each other for three-month loans fell 3 basis points to 4.79 percent yesterday, the lowest level since April 18, according to the European Banking Federation. The one-month rate declined 3 basis points to 4.48 percent.
The ECB said banks yesterday borrowed 8.2 billion euros at the emergency overnight marginal rate of 4.25 percent, down from 14.5 billion euros the previous day.
Still, overnight deposits with the ECB have exceeded 200 billion euros on 11 of the past 12 days. The deposit rate is currently 3.25 percent.
The U.S. Federal Reserve and the Bank of Japan cut their benchmark rates this week and ECB President Jean-Claude Trichet has said he's likely to reduce borrowing costs at the next policy meeting on Nov. 6. The ECB's key rate is currently 3.75 percent. (Bloomberg)
- Gabi Thesing
