Eurozone banks deposited a record amount of overnight funds at the European Central Bank on Monday, official data showed Tuesday as banks remain extremely wary of lending to each other.

Banks put 411.8 billion euros ($535 billion) on deposit for 24 hours at the European Central Bank, beating the previous record of 384.3 billion euros seen in June 2010. The level of deposits at the ECB bank is an indicator of the reluctance of banks to lend to each other on the pivotal interbank market. 

The money deposited earns an interest rate of 0.25 per cent, which is less than the rate available on the interbank market.Banks become reluctant to lend to each other notably when they are concerned about the capacity of the borrower to repay the loan.

Last week, 523 banks borrowed a record 489.2 billion euros from the ECB in a brand-new three-year lending facility, a move which the European Systemic Risk Board said would ease funding pressures on banks. The ECB agreed to make the cash available so as to avert a possible credit crunch, charging just 1.0 per cent interest.But the deposit data suggest the banks are now simply parking the cash with the ECB.

The Daily Independent/Bangladesh/ 26th Dec 2011