ECB is seeing its overnight lending soar

City A.M. Reporter
EMERGENCY overnight lending from the European Central Bank remained in demand, while overnight deposits hit a new 15-month high, figures showed yesterday, a sign of strains in bank funding markets.

Banks took €2.8bn (£2.4bn) from the 17-country bloc central bank’s expensive overnight lending facility, where they have to pay 2.25 per cent interest, compared with Friday’s 0.919 per cent at the interbank markets.

Overnight borrowing topped €1bn for the sixth day in the row and is likely to stay high until at least tomorrow, when banks get funds in the ECB’s weekly refinancing operation.

At the same time, overnight deposits jumped to their highest level since late June of last year, topping €255bn.

Banks are increasingly concerned about lending funds to each other as the European sovereign debt crisis worsens.

The implosion of Belgian lender Dexia, the first bank to fall victim to the two-year-old Eurozone debt crisis, has added a sense of urgency to the talks.

Also putting pressure on the banks is Greece’s ongoing negotiations with the troika – its lenders at the EU, the IMF and the ECB – which are expected to end today.

“After a long series of talks and meetings with representatives of the troika, we have concluded the circle of scheduled meetings and the mission is expected to be concluded by [Tuesday],” Greek finance minster Evangelos Venizelos said yesterday.

The EU, IMF and ECB mission chiefs, are likely to conclude their visit by issuing a joint statement today. Back in Brussels and Washington, they will prepare reports for Eurozone finance ministers and the IMF’s board, who will decide on the aid tranche.

Without the next €8bn aid installment Athens could run out of cash as soon as mid-November.