Europe’s Banks Sitting on Mound of Cash

Overnight deposits with the European Central Bank (ECB) totaled euro455.3 billion yesterday, a new record. Borrowing totaled a scant euro1.9 billion.

Less than 2 weeks ago, Europe’s banks borrowed nearly half a trillion euros for three years at 1% interest in the ECB’s effort to keep credit flowing in the Eurozone.

What appears to have happened instead is that the banks are content to sit on the cash, at least through mid-January, when the ECB’s reserve maintenance period ends. What will happen after that is anybody’s guess. Our guess is that the banks will use the cheap money to buy sovereign bonds, like Italy’s, which paid a yield of more than 7% this morning. That’s a sweet deal.