22nd Oct 2020

ECB liquidity injections not working

  • The European Central Bank headquarter in Frankfurt - last safe deposit? (Photo: ECB)

The billions of euros the European Central Bank has been injecting into money markets since the start of the crisis in an attempt to get banks to start loaning money to each other and other businesses is not working.

Instead, banks are redepositing some of the monies back with the ECB itself - over €100 billion overnight as of Tuesday (30 September - the latest available figures) - as they are worried that the central bank is the last safe place left to stash their cash.

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As of last Tuesday (23 September), banks had "parked" €1.4 billion with the ECB's "deposit facility." By Thursday, the figure had climbed to €4.2 billion and jumping to €28 billion the next day.

On Monday, banks were now depositing €44 billion with the ECB and as of yesterday, the latest figures available, the cash placed with the bank for safekeeping had more than doubled to €102.8 billion.

An official with the ECB told the EUobserver that "never before" had this happened. "It's very strange that banks are doing this."

"If you didn't have the economic turmoil in the back of your mind, you would think this is an uneconomic decision," the official said, explaining that banks are borrowing from the ECB at a rate of 4.8 percent but when they deposit the same money back in Frankfurt, they are only earning 3.8 percent.

"So they're losing money," the official said. "The deposit facility is not meant for parking your money. It's meant as a last resort when a bank can't do anything else with its money.

"It shows that there's no trust, no confidence out there," the official continued. "They're thinking if they're going to lose money, at least parked at the ECB is the safest way to lose it."

Joking blackly, the official said: "At least the ECB is making some money on these transactions."

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