Europe’s Banks Still Sitting on Mountain of Cash

When European banks borrowed nearly half a trillion euros from the European Central Bank (ECB) in mid-December, the idea was that the banks would take the cheap money (1% interest for three years) and use it to keep credit flowing in the Eurozone.

If that’s happening, it’s happening on a much smaller scale. Again last night, overnight deposits with the ECB set a new record of about €490 billion. Wednesday nights total was a mere €470.6 billion. By contrast, Eurozone banks borrowed just under €1.5 billion last night.

There are several reasons given for why the banks are just sitting on the cash. First, about €200 billion in Eurozone bank loans will be due in the first quarter. A second reason is that the banks want to get into carry trades, using the 1% money to buy sovereign bonds with considerably higher interest rates. And there are plenty of those available from Greece, Italy, and Spain.