Eurozone banks flee from ECB’s new zero per cent deposit rate

Tim Wallace
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BANKS responded immediately to the European Central Bank’s (ECB) decision to slash its deposit rate to zero, with hundreds of billions of euros now kept in current accounts, not the deposit facility on Wednesday night – the first day of the lower rate.

ECB data showed €325bn (£257bn) was held in the facility, down from the €800bn left there on the previous day and the €700bn at the same point last month.

Governing council member Josef Bonnici described the figures as “encouraging,” arguing the rate cut “provides an incentive for the banking system to look what alternatives there are to improve their earnings.”

But economists were sceptical, pointing to the shift of cash from the deposit facility to the zero-paying current accounts.

“Indeed, for banks it is now easier to just leave excess liquidity in the current account rather than arranging a transfer of the funds in the deposit facility,” said Citi’s Jurgen Michels.

“In the current account, banks always received a zero per cent re-numeration on excess liquidity – only the required minimum reserve holdings are re-numerated with the rate on the main refinancing rate (currently at 0.75 per cent).”

Meanwhile data out yesterday from Debtwire Analytics showed investors still shying away from high-yield corporate bonds, favouring safer products. The research showed companies issued €25.6bn of high yield bonds in the first half of 2012, down sharply from the €37.7bn in the same period of 2011.