Banks are borrowing at 1% from the ECB and then lending the money back to the ECB at 0.25%. Or to put it another way, they are taking a substantial loss on their dealings with the central bank.
Why on earth would they do this?
Well, as I’ve said many times before, it is because they would rather be sure their money is safe and easy to get their mitts on, than take the risk of obtaining a higher interest rate by lending the cash to other banks…..
But actually for me there is a more troubling ECB statistic – which is that eurozone banks last night borrowed 15bn euros overnight from the central bank (and a little less on Monday but a bit more at the end of last week).
Why does this matter?
Well the European Central Bank has just pumped an astonishing amount of new loans into the banking system. And yet there are some banks out there which are still short of cash – and are unable to borrow it from other banks, financial institutions or commercial customers.