European Central Bank Overnight Deposits Reach Near-Record Entering New Year

Despite their job description, European banks are shying away from lending, and it may be hurting the European economy.

European banks parked a near-record amount of deposits at the European Central Bank's overnight deposit facility on Thursday, according to the ECB: $577 billion, or 446 euros, just $8 billion shy of the all-time high reached on December 27.

As European banks struggle to raise capital to meet new regulations, they will likely exacerbate Europe's economic woes by slashing lending to consumers, businesses and each other, while putting their money in the ultimate safe haven: the ECB's overnight deposit facility.

Morgan Stanley expects Europe's banks to cut their assets by up to $4 billion, or 3 trillion euros, in the coming years, according to Reuters. Slashing lending on that scale could contribute to a prolonged recession in Europe.

European banks are cutting lending in part to meet new capital requirements. The European Banking Authority mandated earlier this month that European banks must hold capital amounting to at least 9 percent of their liabilities by June, according to Bloomberg News. They need to raise $149 billion, or 115 billion euros, in new capital.

Meanwhile, the European economy, which will likely take a hit from government austerity measures in countries such as Greece and Italy, is likely to suffer from less lending from banks, forcing consumers and businesses to also scale back. IHS Global Insight forecasts that the eurozone's economic output will shrink 0.7 percent in 2012 and even more sharply in the countries that are most in danger of defaulting on their debt.

The size of the overnight deposit facility has broken records several times in December, indicating that European banks are worried about the safety of lending to other European banks, which largely have some exposure to European government debt. On December 12, deposits reached an all-time high of $447 billion. Deposits broke a record again on December 22, reaching $453 billion. They reached their all-time high on December 27: $585 billion, or 452 billion euros: a 10 percent increase from during the Christmas holidays.

There are other signs of distress for European banks. Over 500 European banks took $635 billion, or 489 euros, in low-interest three-year loans from the ECB before the Christmas holidays, according to the WSJ. As European banks have more than $900 billion of their own debt maturing in 2012, they likely will need to take advantage of the ECB's generous lending even more as banks slash interbank lending.

Comments

[walstir]

11:59 AM on 12/31/2011

"Morgan Stanley expects Europe's banks to cut their assets by up to $4 billion, or 3 trillion euros, in the coming years, according to Reuters."
That dollar/euro conversion is wrong by a factor of 1000.

[aynrandfan2012]

02:49 PM on 12/30/2011

Nanny Statism fails.......Our Government better start selling thier land to pay off the elderly

[Artamentous]

12:23 AM on 12/31/2011

It failed? That is true, but so did Capitalism, no? Did the US government not just step in 3 years ago and bail out the Banks which are the life blood of this economy? Whose failure would have had such devastating cascading effects that is likely a social revolution of some sort would have swept this country? Certainly this country would never accept near 20% unemployment, and it's quite possible it could have been worse.

Of course this collapse effected Europe too, so I'm not sure which failed first, are you?

[Peanut Santiago]

12:47 AM on 12/31/2011

Socialism did it????

Tranches, derivatives, rehypothecation, collateralized debt obligations, credit default swaps, and all the rest are NOT a product of socialism.

Capitalism did us in, at worst socialism added a little to the witches' brew.

[aynrandfan2012]

02:48 PM on 12/30/2011

Im buying EU stocks right now........the companies are not in debt....the welfare state is.......tax payers dont owe the elderly soc security....the government does......shouldnt make Socialist promises I quess

[Peanut Santiago]

12:39 AM on 12/31/2011

I guess you have lots of money and want to get rid of social security in the U.S.

I wonder how all those ordinary non-rich Repug voters on social security (or soon will be) feel about socialist promises NOT being kept when it affects THEM?

I wonder.......

[vippy]

02:15 PM on 12/30/2011

Just read in a German Paper that the EURO has not reached its peak yet.  Why the scaremongering from a country that is neck deep in big doodoo!

[halfpricefaustian]

01:50 PM on 12/30/2011

Where have I heard this before? Central bank loans big banks tons of money to get the economy going. Banks use the free money to buy treasuries and/or speculate instead of making those risky, nasty loans to businesses. If only I had a bank, I could live off state welfare.

[Peanut Santiago]

12:42 AM on 12/31/2011

The United States, two bailouts in 2008-2009.

Europe 2011, one bailout.

Socialism and welfare are bad UNLESS it is bankers and stock marketers who need it.
THEN it is acceptable.

We the people (at least some of the people) have been brainwashed by the 1% and their propaganda.

[Realist2011]

01:20 PM on 12/30/2011

Wow, what a surprise. The ECB lends banks hundreds of billions at extremely low interest rates, because they wanted the banks to support their economies. Instead, the banks take the money and park it at the central banks, where they can make a profit on the taxpayers money, with zero risk and extremely limited cost. What kind of dolt would not understand this to be the only logical action on the part of the banks.

Here's how you solve this. Recall every one of the loans. Period. End of problem. The banks must raise cash, not hedges, not re-calculate their risk-weighted assets, they must raise cash, and the ECB should refuse to lend. What a joke.

So the taxpayers pick up the tab for the banks again.

Gee, kind of sounds like the Treasury and the Fed in the US, doesn't it?

[Artamentous]

12:26 AM on 12/31/2011

Indeed, but in Europe those citizens don't put up with it, and they strike. They aren't stupid over their, docile peons like us Americans they are not.

This new year is going to be really insane over there, Austerity is not going to to go over well, why should the mass of people pay for the mistakes of a relative few who simply wanted more and more money? They wont, nor should they.

[koos458]

12:49 PM on 12/30/2011

Just shows that the banks have run out of opportunities to loot and pillage.