ECB Overnight Deposits Reach New High

By WILLIAM LAUNDER

The Wall Street Journal

… Use of the European Central Bank's overnight deposit facility reached a new, all-time high…

… The high level reflects ongoing distrust in inter-bank lending markets,…

… It further underlines the abundance of liquidity…

FRANKFURT—Use of the European Central Bank's overnight deposit facility reached a new, all-time high Monday, as euro-zone banks parked a growing surfeit of market liquidity in the central bank's safe haven for deposits.

Banks deposited €411.81 billion overnight Monday, up from €346.99 billion deposited overnight Thursday ahead of the Christmas holiday, ECB data showed Tuesday.

Monday night's deposit figure surpasses the previous record of €384.3 billion reached in June 2010, ahead of a 12-month tender operation and concerns about the then-nascent debt crisis.

The high level reflects ongoing distrust in inter-bank lending markets, where banks prefer using the low-risk ECB facility for excess funds rather than lending them to other banks.

It further underlines the abundance of liquidity in the euro-zone financial system, after the central bank extended nearly half a trillion euros in long-term loans to more than 500 euro-zone banks last week. The loan operation is aimed at easing fears of a new credit crunch as banks struggle to borrow from markets.

The ECB's so-called benchmark allotment pointed to a major liquidity overhang in the euro zone's financial system Tuesday. Benchmark allotment, which is the ECB's estimate of the liquidity banks need to conduct routine operations, was minus €493 billion. The negative allotment figure indicates the presence of excess liquidity in the financial system.

The ECB further said banks borrowed €6.13 billion from the ECB's overnight lending facility, compared with €6.34 billion borrowed Thursday.

When markets are functioning properly, banks only use the facility to the tune of a few hundred million euros overnight.