DEPOSITS at the European Central Bank (ECB) hit another record high yesterday, indicating that much of the new liquidity created by the central bank is still stuck in its own coffers rather than boosting the real economy.
Funds in the ECB’s deposit facility edged up €69m to hit €453bn yesterday, suggesting that banks are not in a rush to deploy their new three-year loans from the Bank.
Yet despite banks stockpiling much of their new cash, use of the central bank’s expensive overnight loans remained unusually high for the third day running. An unknown number of lenders drew €15bn of the costly funds despite also having access to cheaper weekly funds at an auction yesterday.
There is growing concern that the financial system’s reliance on the central bank for funding could exacerbate a collateral squeeze as they store their best assets in exchange for ECB loans. Unlike collateral traded between banks, assets parked at central banks no longer circulate.
Some economists object that the deposit facility is not a good gauge of banks’ willingness to lend because it is only an aggregate measure and doesn’t reflect interbank activity, but the ECB still regards it as a helpful indicative measure.