Banks Still Hoarding Cash

inspector_monkfish

14:20 18May10 - ECB Drain Shows That Banks Sit On Hoarded Liquidity




FRANKFURT--The European Central Bank drained EUR16.5 billion from the euro-zone money market Tuesday as banks scrambled to place seven-day funds with the ECB in another sign that too much money is sloshing around in the bloc's financial system.

The new type of auction, which the ECB launched this week to make good on money printed to make sovereign debt purchases without further increasing the liquidity imbalance, met great demand.

Around 220 bidders offered as much as EUR162.744 billion for the ECB to hold on to for seven days, while the ECB had previously said it will only drain EUR16.5 billion this week, which is about the amount it spent on buying sovereign debt in the secondary market until now.

The average weighted allotment rate for Tuesday's drained funds was just 0.28%, which compares with the ECB's 1% key borrowing rate, reflecting a stinging loss of 72 basis points for each of the successful bidders on average.

But some EUR146 billion now look likely not be used at all as banks keep shying away from lending to each other.

ECB website: www.ecb.int

Generali

So what's the solution do you think?

The only way to remove counterparty risk is for Governments to take on the risk of each and every financial transaction that is undertaken in the currency they administer. I hope that it's clear to all why that is impossible.

Degenerate

Generali wrote: »

So what's the solution do you think?

Continuing large-scale debt monetization by the ECB to inflate away the losses. The re-establishment of local currencies, initially under a fixed exchange regime with the new currencies pegged appropriately to PPP. Compulsory re-demonination. Temporary exchange controls while the currencies are gradually re-floated. Haircuts all round.

It's not pretty, but it's the only way to extricate from the Euro mess.

crazygaijin

Generali wrote: »

So what's the solution do you think?

There is no solution. Its just a question of time now before the first currency crisis. This will spread around the world as people try and get theri money out of the banks and buy something tangible before paper currency goes back to its true value of nothing.

jonewer

Pesky banks.

Hoarding money instead of whoring it out irresponsibly to anything with a pulse.

shane42

the banks better be hoarding it , i might need it back one day

dopester

Banks Still Hoarding Cash