ECB Records an Increase in Overnight Deposits

By TraderVox.com

Tradervox.com (Dublin) – The ECB has indicated that its overnight deposits have increased to a record high after it offered the second allocation of three-year loans. The European Central Bank indicated that banks in the euro zone deposited 776.9 billion Euros. This is the most amounts deposited since the Euro became a legal tender in 1999. This amount was from 475.2 billion Euros a day before. The financial institutions are getting 0.25 percent on the deposits.

The increase in overnight deposits is as a result of the 529.5 billion Euros it has lent to financial institutions in the area. This is the biggest refinancing operation the bank has done in its history, bringing its total long-term lending to more than 1 trillion Euros. The banks received this money yesterday and they are supposed to pay the average of the ECB’s benchmark rate that is currently held at one percent. This is supposed to proceed over the entire period of the loan. There are 800 banks that have participated in this operation out of the 2,267 financial institutions registered to borrow from the ECB.

According to Laurent Fransolet, the Head of Fixed Income Strategy at Barclays Capital in London, the deposits will stay at around 800 billion over the next one year. Economists have indicated that around 230 billion Euros of the money was accounted for by the existing European Central Banks loans that have been rolled into the new facility. This means that the new cash from the banks operation is about 300 billion Euros.

Mario Draghi indicated yesterday that policy makers were satisfied with the reception and number of participants in the operation. This operation is aimed at unlocking credit for households and companies by allowing small and medium sized financial institutions to access the funding. However, the ECB President Mario Draghi had indicated in his Feb. 21 letter to a member of the European Parliament that the increase in overnight deposits does not reflect the impact of the loan on the economy, but reflects a balance sheet identity with the increase in refinancing operation.

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