Snip ~ Banks are also increasing their liquidity because of their reserve requirements. To ensure their financial stability, banks are required by the ECB to maintain a certain level of reserves. The current reserve period will end Sept. 13.
September 8, 2011
Sovereign Debt Lenders Park Extra Cash At European Central Bank
Frankfurt, Euro-zone banks' overnight deposits at the European Central Bank rose Monday to the highest level in more than a year, indicating rising fears that the currency bloc's sovereign-debt crisis could deepen.
Banks deposited €166.85 billion ($235.23 billion) at the ECB, the central bank said Tuesday, up from the previous 2011 peak of €151.1 billion recorded Friday. The total was the highest since deposits hit €172.09 billion on Aug. 9 2010.
The amount of money banks have on their hands exceeds their needs, a result of the ECB's monetary policy, which is also aimed at avoiding a liquidity crunch.
"The fact that almost all this excess liquidity is going back to the ECB is a sign of stress," said Patrick Jacq, an interest-rate strategist at BNP Paribas in Paris.
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"This is driven by the situation in Europe, where sovereign-debt concerns have an impact on interbank liquidity, given the large exposure of European banks to sovereign risk."
A level above €100 billon signals market uncertainty, indicating that banks prefer to park their money with the ECB instead of lending it to one another.
"Having cash at the ready is certainly the way for banks to respond to the various risk factors that they possibly could encounter in the coming weeks," said Orlando Green, an interest-rate strategist at Crédit Agricole CIB in London. "[There is] a lot of uncertainty out there [and] banks want to be nimble."
Banks are also increasing their liquidity because of their reserve requirements. To ensure their financial stability, banks are required by the ECB to maintain a certain level of reserves. The current reserve period will end Sept. 13.
Meanwhile, banks borrowed a negligible €8 million from the ECB Monday, down from €14 million Friday.
They "are well ahead of target for the rest of the reserve period," BNP's Mr. Jacq added.
The peaks in the deposit amounts came while the ECB has been stressing that European countries should keep to their fiscal austerity promises. ECB President Jean-Claude Trichet called recently on Italy in particular and other euro-zone states in general to deliver on their budget-tightening pledges.
Mr. Trichet is expected to make similar comments at the ECB's next interest-rate meeting, scheduled for Thursday.
"The ECB will try to place emphasis on sovereigns resolving differences and displaying more unity, that's the concern for the ECB," Mr. Green said.
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