Emergency overnight borrowing from the European Central Bank remained exceptionally elevated for the second day running today, strengthening fears that a euro zone bank could be facing serious funding problems.
ECB figures showed banks borrowed more than €16 billion in high-cost emergency overnight funding - the highest amount since June 2009. The sum compared with the €1.2 billion borrowed before the figures spiked to more than €15 billion yesterday.
The ECB gives no breakdown of the borrowing figures and declined to comment when asked for an explanation for the sudden spike.
Traders remained unsure whether the jump was down to a serious funding issue or whether a bank had made an error earlier in the week by not borrowing enough at the ECB's regular weekly tender.
"This suggests that some banks have not tapped enough liquidity in the ECB’s main refinancing operation (MRO) on Tuesday, which was allotted on Wednesday," Citigroup said in a note.
The brokers said that unless the ECB provides term-liquidity until the end of the running MRO next Tuesday, there will continue to be a high use of the marginal lending facility.
If a bank, or number of banks, did not get enough funding, and were unable to make up the difference in open markets, they would be forced to use the ECB's emergency facility until the next ECB tender came around.
The next ECB offering is on Tuesday, banks get the money on Wednesday, meaning any change would evident in figures published early on Thursday.
"As no bank or banking group from any euro zone country is aggressively seeking money in the interbank market at the moment, it is likely that something went wrong at the main refinancing operation," said one euro zone money market trader.
"The bank or banking group needs to tap the ECB for the money whether they like it or not, or they are doing that so as not to appear active on the money market and to thereby be stigmatised."
A number of banks, mainly from the euro zone's most debt-strained countries but also troubled banks in core countries, remain barred from open money markets and almost completely dependent on the ECB for funding.
The extra 0.75 per cent banks have to pay for overnight funding normally means it is used only as a last resort.
The last time before this week that overnight borrowing exceeded €10 billion was on June 24th, 2009, when it was €28.7 billion, the highest ever. This year, emergency overnight borrowing has been above €1 billion only twice.
Reuters
