Bank deposits at ECB hit fresh high

Banks are awash with cash after taking an unprecedented 489 billion euros in the ECB's first-ever three-year liquidity operation late last month, and they are still mulling what to do with the money in the longer term.

The ECB pays 0.25 percent interest for overnight deposits, well below the 0.372 percent at which banks could lend out their spare cash on interbank markets.

In another sign of flight to safety, investors on Monday paid to lend Germany money for the first time at a regular debt auction, with six-month yields falling to -0.0122 percent.

Overnight deposits, hitting a fresh record for the third day in a row, tend to rise towards the end of the month-long reserves maintenance period, which ends on Jan. 17, when banks have fewer options to juggle their funding as they have to show they have the funds required of them.

With total ECB lending at 685 billion euros, banks are returning 70 percent of the money back to the central bank.

While banks deposited less than 300 billion euros at the ECB in the last two reserves maintenance periods, those deposits still amounted to about two-thirds of ECB-provided liquidity back at the central bank, close to the same proportion as now.

Before the financial crisis started, banks made scant use of the deposit facility, giving the ECB less than 100 million euros on most days.

Emergency overnight borrowing edged up on Tuesday to 1.519 billion euros from 1.391 billion euros the previous day, which was the lowest since November 7.

Copyright Reuters, 2012