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Euro zone banks park record amounts at ECB

  • 31-12-2011 9:38pm
    #1
    _AVALANCHE_
    Closed Accounts Posts: 1,620 ✭✭✭


    Why are the banks allowed to do this?? They should be forced to lend it.
    Euro zone banks park record amounts at ECB

    Euro zone banks deposited a record amount of overnight funds at the European Central Bank last night, official data showed today as banks remain extremely wary of lending to each other.


    Banks put €452.03 billion on deposit for 24 hours at the European Central Bank, beating the previous record of €411.8 billion set earlier this week.
    The level of deposits at the ECB bank is an indicator of the reluctance of banks to lend to each other on the pivotal interbank market. The money deposited earns an interest rate of 0.25%, which is less than the rate available on the interbank market.


    Banks become reluctant to lend to each other notably when they are concerned about the capacity of the borrower to repay the loan.


    Last week, 523 banks borrowed a record €489.2 billion from the ECB in a brand-new three-year lending facility, a move which the European Systemic Risk Board said would ease funding pressures on banks.
    The ECB agreed to make the cash available so as to avert a possible credit crunch, charging just 1% interest. But the deposit data suggest the banks are now simply parking the cash with the ECB.
    They borrowed to park it, even borrowing it at a super low 1% they're still losing out as they're only getting a quarter of that putting it on deposit with the ECB.


Comments

  • #2
    OfflerCrocGod
    Registered Users, Registered Users 2 Posts: 6,334 ✭✭✭OfflerCrocGod


    They have no interest in loaning that money out it will be used to pay for maturing bonds over 2012 due to the fact the markets are frozen and they won't be able to roll them over in any other mode.

    Or, if you prefer, an alternative interpretation of what the ECB is doing.


    HYPERSINFLATIONS!!!!11!!!


  • #3
    shangri la
    Registered Users, Registered Users 2 Posts: 952 ✭✭✭shangri la


    Basic understanding
    Inflation = too much money chasing too few goods

    how would the banks parking the cash result in hyperinflation?


  • #4
    OfflerCrocGod
    Registered Users, Registered Users 2 Posts: 6,334 ✭✭✭OfflerCrocGod


    shangri la wrote: »
    Basic understanding
    Inflation = too much money chasing too few goods

    how would the banks parking the cash result in hyperinflation?
    Congratulations, it got through eventually. What the banks are doing is battening down the hatches and covering themselves for the rest of the year so hopefully people will start to see that hyperinflation just isn't our problem no matter how much the central banks desperately try to give them money.

    Most of the inflation we will see this year should be down to the VAT rise, which is of course over the long term deflationary as it suppresses economic activity. I think several European governments have VAT/tax rises next year which may increase inflation and therefore tie the ECB's hand when it comes to lowering rates even though the European economy needs rates as low as they can possibly go. I hope rates will be lowered to 0/0.25 to help the economies of Europe but such a move will face stiff German hard-money resistance.

    3% is hyperinflation for the Buba.


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