Bankers' fears cast a shadow over beleaguered eurozone
Last updated at 10:33 AM on 1st January 2012
The eurozone faces a stressful start to 2012 as its banks ended last week hoarding unprecedented levels of cash at the European Central Bank while also tapping it for massive overnight loans.
ECB figures show banks in the single currency zone had 445.7billion euros (£372.3billion) on deposit with it on Friday.
This is close to the all-time high of 452billion euros last Wednesday and far above the average deposit total of 100billion euros over the past year.
Shadow: The eurozone faces a stressful start to 2012 as its banks ended last week hoarding unprecedented levels of cash at the European Central Bank while also tapping it for massive overnight loans
At the same time, banks scrambled to borrow via the marginal lending facility under which the ECB will lend overnight against certain assets.
Eurozone banks borrowed 17.3billion euros at the end of last week, higher than the previous peak of 17.1billion euros last February. Again, this is far above the average daily borrowing of 1.8billion euros.
Banks may place high amounts on deposit with the ECB because they are reluctant to lend to each other. At the same time they may turn to it for short-term loans because they themselves cannot borrow from other banks.
The pattern may be caused by banks hoarding cash rather than lending it for fear of defaults by borrowers.
Bruce Packard, banking analyst at broker Seymour Pierce, said the pattern may also be driven by banks wanting to appear low risk for their annual accounts.
‘At the year end the banks like to window-dress their balance sheets. They don’t want to look as if they are just handing round money to each other,’ he said.
Before Christmas, the ECB injected billions of euros in extra loans into the banking system, a step that calmed fears that national debt problems could trigger a banking crisis.
However, the euro still faces difficulties. It fell against the dollar last week as investors fled to the safe haven of US funds.
At the same time there was little sign that troubled eurozone countries were finding its easier to borrow.
Italy, now regarded as the front line of the euro crisis, tried to raise 8.5billion euros from bond markets on Thursday but could only get seven billion, despite the recent injection of capital from the ECB.
At the same time, the main benchmark for Italy’s debt costs – the yield on its ten-year bonds – ended last week just above seven per cent, a level widely seen as unsustainable.
A new summit of EU leaders, including David Cameron, is due this month to discuss the crisis.
Read more: http://www.thisismoney.co.uk/money/markets/article-2080712/Bankers-fears-cast-shadow-beleaguered-eurozone.html#ixzz1iECfDYbG
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