Eurozone interbank lending rates eased on Thursday, pulled down by an overall excess of liquidity in the banking system, but a sharp rise in overnight emergency lending from the ECB highlighted the disparity in bank funding. Emergency overnight borrowing from the European Central Bank jumped to more than 15 billion euros, a 20-month high.
The figure caused some jitters in the markets as dealers tried to determine whether a bank had made an error in reserves maintenance or if it was an indication of trouble. "The issue is there is an enormous discrepancy of liquidity needs across countries and across banks," said Societe Generale's chief European economist James Nixon.
Overnight borrowing from the ECB is usually well below 1 billion euros. This year, emergency overnight borrowing has been above 1 billion only twice, both times this week. The last time it exceeded 10 billion was in June 200.
But at the same time as overnight borrowing soared, excess liquidity in the banking system stands at around 46 billion euros, according to Reuters calculations. Almost 15 billion euros of that was deposited back at the ECB overnight, and the central bank was able to drain 76.5 billion euros to offset its bonnd buying programme this week Benchmark three-month euro Libor rates fell to 1.03750 percent. The Eonia overnight rate eased to 0.70 percent at Wednesday's fixing and is seen easing again on Thursday.