Banks' overnight deposits at the European Central Bank hit a new record high of €464 billion, according to data released today, and traders said they could hit half a trillion euros by next week.
High deposits indicate banks prefer the safety of the central bank for their funds to higher rates they could get by
lending to each other.
Banks are awash with cash after taking an unprecedented €489 billion in the ECB's first-ever three-year liquidity operation late last month, and are mulling what to do with the money in the longer term.
The liquidity operation was designed to underpin banks' finances and hopefully repair some confidence in the sector, but the sovereign debt crisis means many institutions still lack enough trust to lend to each other and prefer to stash their money at the ECB.
"The market is more or less closed, all the over-liquidity is going back to ECB," the trader said. "Slowly people are getting some longer funding, but there is no easing in the short end."
The ECB pays 0.25 per cent interest for overnight deposits, well below the 0.357 per cent for which banks could lend out their spare cash on interbank markets.
Overnight deposits have a tendency to rise towards the end of the month-long reserves maintenance period, which ends on January 17th, when banks have fewer options to juggle their funding as they have to show they have the funds required of them. "Towards the end of reserves period it could go to 500 billion," a euro zone money market trader said.
Emergency overnight borrowing fell to €1.391 billion, the lowest since November 7th.That eased some concerns about banks scrambling desperately for funds and having to pay an interest rate of 1.75 per cent instead of the 1.0 per cent the ECB charges in its regular refinancing operations.
Shares and rights in UniCredit, Italy's largest bank by assets, were suspended from trading today, after rights indicated down 14.2 per cent in a volatile start.
UniCredit has priced its two-for-one rights issue at €1.943 per share. This is equivalent to a 43 per cent discount to the theoretical ex-rights price, a much higher discount than that offered by peers in recent rights issues, with traders saying the large discount was due to concerns that appetite for new shares could be scant. That also raised worries that other banks may struggle to raise cash if they need it.
The European Banking Authority has estimated that European banks need an additional €114.7 billion of extra capital to reach the new capital standard of core Tier 1 capital adequacy ratio of at least 9 per cent of risk-weighted assets.
The €463.565 billion in deposits topped the previous record high of €455.3 billion reached on Friday. With total ECB lending at €685 billion, banks are returning two-thirds of the money back to the central bank.
