Monday 24 September 2018 4:55 pm

Euro zone banks led by Germany in hoarding more cash, European Central Bank says

Reporter at City A.M. covering banking, markets and insurance

Reporter at City A.M. covering banking, markets and insurance

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Banks in the euro zone, led by Germany, have been storing more and more money to avoid European Central Bank (ECB) charges.

In a research bulletin, the ECB said the amount of vault cash held by Europe's major banks had increased by €21.1bn – to between March 2016 and December 2017, having been at €50.1bn on average for the previous eight years.

The cash stored by banks reached €76.8bn, which the institution said was 6.6 per cent of the total value in circulation.

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It said German banks accounted for 70 per cent of that increase but it was also driven by British, Italian, French, Austrian and Spanish lenders.

The ECB lowered the interest rate on its deposit facility below 0 per cent in June 2014 and said this was a "pivotal point" for some banks, which subsequently decided to convert part of its liquidity into cash.

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It said: "For these major financial institutions, the costs of cash (i.e. costs associated with cash storage and handling) were obviously less than the losses resulting from the negative yields from the ECB deposit facility."

But it said the increase in stored cash remained "limited" due to logistical constraints.