Eurozone Banks Even Now Stocking Cash Loans Revealed Analyst

It has been indicated that the European Central Bank observed a huge demand for its weekly cash loans, with 600 commercial banks cracking up more than 216 bn euros (300 bn dollars) though the ECB expects a excess of cash on interbank markets.

However, Commercial banks also stocked higher amounts of cash in overnight accounts with the ECB even as pressure on interbank markets eased, which Bank of America economist Gilles Moec termed a "a bit daunting" trend by commercial banks.

According to Moec, "It means they are strained that they want to maintain as much liquidity as possible, and that they don't discover any other use for their liquidity."

"On the positive side of things, interbank interest rates are reducing," he added, pointing out that the reference three-month London Interbank Offered Rate (LIBOR) for interbank cash loans was 2.84 per cent.

That was much closer to the ECB's benchmark lending rate of 2.50 per cent than has been the case for much of 2008, revealing that stress had eased on markets that are significant for expanding credit to the wider economy.

"That is of tremendous assistance," Moec described, "for Spanish mortgage holders for example who were directly strike by the enhancement in the LIBOR" last year.

But, the economist continued, "When you come across at the constant skewness of bank's attitude towards liquidity there is no change over the few months back."

The ECB and other major central banks have given cash loans to money markets at low fixed interest rates to jumpstart bank lending, but the banks continue to store cash.

They are in favor to pay a small penalty by depositing cash back with the central bank rather than to lend it to other banks amid chronic insecurity over credit standing of their partner, Moec said.

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