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Image: Michael Probst/AP

Deja vu: ECB gives banks new money - and banks save it in the ECB

Overnight deposits in the ECB surged to their highest ever, just a day after it issued €529 billion to boost credit markets.
Mar 2nd 2012, 12:42 PM 1,952 20

THE ECB has reported a major surge in the amount of overnight deposits lodged with it – just a day after the bank created €529 billion in new cash and lent it to those banks in a bid to increase the supply of credit.

Banks left just under €777 billion in the bank last night, a new all-time record, up by some €475 billion on the overnight deposits for Wednesday.

The boosts follow Wednesday’s issue of a second round of ‘longer-term refinancing options’, where the ECB created new currency to lend to 800 eurozone banks in an effort to encourage those banks to boost their own lending to businesses and customers.

The surge indicates that banks reacted to the injection of new capital by keeping it ‘somewhere safe’, as they weighed up whether to pass on the cash to the open market.

A similar LTRO offering just before Christmas led to a similar sharp increase in deposits, as banks opted to keep their cash with the ECB before they began to lend it out to customers.

Analysts at Barclays, RBS and ING told Bloomberg that around €230 billion of the new overnight deposits came from existing loans, meaning around €300 billion of the new deposits are part of the cash dispersed by the ECB earlier in the week.

Read: ECB pumps €529bn of new cash into European banking system >

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Gavan Reilly

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