Friday 9 December 2016

Banks hoarding cash to avoid the risk of lending

BANK FUNDING

Published 23/08/2011 | 05:00

THE amount of cash deposited by commercial banks overnight with the European Central Bank spiked last week, ECB data showed yesterday, a sign that they may be increasingly reluctant to lend.

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ECB data showed commercial banks parked €107.2bn in the central bank's deposit facility on Friday, up from €90.5bn on Thursday.

While the amount remained well below the year-high of €145.2bn in early August, it is nonetheless a substantial amount for banks to deposit at a rate of 0.75pc, which means they forgo earnings rather than lend it to other banks at the current going interest rate of around 0.89pc.

According to Lena Kormileva, a strategist at Brown Brothers Harriman, the figure shows that "the ECB's intermediation (in the money markets) remains broken.

"Banks are hoarding cash due to systemic risks," which are expected to grow further, she argued.

On August 11, the ECB launched an exceptional six-month loan operation that saw 114 eurozone banks request a total of €49.8bn from it.

However, pumping cash into interbank lending markets might not ease financing problems for those banks which are considered most at risk of being unable to repay their loans.

Irish Independent

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