Banks' emergency overnight borrowing from the European Central Bank fell below EUR1 billion Wednesday for the first time since September, in a sign of reduced market tensions since the ECB flooded the banking system with liquidity in December via its first three-year loan operation.
Banks borrowed EUR755 million from the ECB's emergency overnight window Wednesday, down from EUR1.16 billion Tuesday, the ECB said Thursday. The last time overnight deposits fell below EUR1 billion was on Sept. 29.
Meanwhile, overnight deposits with the ECB also fell as the central bank's new reserve period began, reaching EUR391.55 billion Wednesday after EUR524.044 billion Tuesday. Banks typically aim to meet the ECB's reserve requirements early in each reserve period, drawing down excess liquidity during that time.
But the level of deposits remained extremely elevated, in a further sign of the large amount of liquidity in the euro-zone banking sector.
The amount parked overnight with the ECB has climbed sharply since late December after banks tapped the central bank for nearly half a trillion euros in three-year loans. Deposits hit an all-time high of more than EUR528 billion in mid-January.
Deposits may shoot up again after the ECB's second three-year loan operation at the end of February. The ECB expects strong demand, especially now that it has eased collateral rules for its refinancing operations.
Announcing the new rules last week, President Mario Draghi urged all banks to bid, saying there is "no stigma on these facilities."
Draghi has credited the ECB's longest-ever liquidity facility with averting a "major credit crunch." Previously banks could borrow for up to a year.
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