Eurozone banks parking ECB bailout funds with ECB

Eurozone banks parked huge amounts of overnight deposits with the European Central Bank for tenures of up to one year on Thursday, showed official data on Friday, reflecting increasing tensions in a banking system shaken by the euro zone debt crisis.

On Wednesday, in its first-ever 36-month refinancing operation, the ECB lent 489.2 billion ($641 billion) to 523 banks for three years at a just 1.0 per cent, a move which the European Systemic Risk Board said would ease funding pressures on banks.

But the deposit data suggest that rather than lending the money to borrowers or buying governments bonds, the banks are simply parking the cash with the ECB.

According to the data, the banks deposited 347 billion euros ($453 billion) for a 24-hour period at the ECB, the highest amount since June 2010.

The data released indicates banks would rather park cash at the ECB than than make inter-banks deposits because of uncertainities over repayment.

The money deposited with the ECB earns a lower interest of 0.25 per cent, than the rate available on the inter-bank market reflcting their concerns over the capacity of borrowers to repay the loan.

The banking system is under tremendous stress from fears that euro zone governments will not be able to pay their debts and will default on bonds held by banks.