Bankers are still nervous.
European banks put 350 billion euros on deposit with the European Central Bank over the weekend, ECB figures show.
That’s the highest level on record and more than seven times as much as the banks were banking with the ECB as recently as mid-May.
The banks aren’t getting much bang for their euro by lending to the ECB. The rate on the overnight deposit facility is just 0.25%.
At the same time, worries about the health of Europe’s economies and its banking systems mean that bankers are loath to part with their money even overnight. Banks are putting their money with the ECB for the same reason investors are buying Treasurys even amid worries that the United States has yet to show any desire to put its fiscal house in order.
This isn’t to say there is a full-fledged panic going on. Libor, after rising for a month, has flattened out. European bank stocks were flattish Monday, with shares in Deutsche Bank, Santander and Barclays all within a few cents of Friday’s closing prices. Credit default swap spreads on the European lenders were only modestly wider, CMA reported.
Still, as skeptics of the global recovery often note, investing in a postbubble world is all about return of capital, not return on capital. So overnight deposits at the ECB may keep rising for some time.