By Ria Novosti
Commercial banks’ overnight deposits with the European Central Bank have hit a new record high against a background of Europe’s lingering sovereign debt woes and a confidence crisis on the interbank market, ECB data showed on Tuesday.
European banks deposited 481.935 billion euros ($612 billion) overnight on Monday, up from 463.565 billion euros deposited last Friday, the ECB data suggested.
Commercial banks, which are awash with funds after the ECB granted them 489 billion euros in an unprecedented three-year liquidity operation last month, prefer using the low-risk ECB facility as a safe haven rather than lending to the real sector of the economy or to each other.
The European central bank’s liquidity operation was designed to shore up banks’ finances and restore confidence in the banking industry, but the lingering sovereign debt crisis in Europe prompts lenders to park their money with the ECB.
The ECB pays just 0.25 percent for overnight deposits, well below the rate charged by the regulator for the loans extended to commercial banks, which are gripped with fear that heavily-indebted European governments could default on their obligations and force banks and other bondholders to take big losses.