Banks Park Record $582.3 Billion at ECB

Commercial banks' overnight deposits at the European Central Bank hit a new record high of 455 billion euros ($582.3 billion), data showed on Friday, indicating banks prefer the safety of the central bank to higher rates they could get by lending to each other.

At the same time, emergency overnight borrowing fell to 1.861 billion euros ($2.382 billion), the lowest since Nov 28.

That eased some concerns about banks scrambling desperately for funds and having to pay an interest rate of 1.75 percent instead of the 1.0 percent the ECB charges in its regular refinancing operations.

The ECB pays 0.25 percent interest for overnight deposits, well below the 0.369 percent for which banks could lend out their spare cash on interbank markets.

"The more banks give back to the ECB is an indication that there is less trust in other institutions," a euro zone money market trader said.

The trader added that while the fall in use of the overnight facility was a "good sign", it was difficult to draw firm conclusions since the reason for the earlier higher use was not known.

The ECB does not release the names or number of banks using the facility.

Banks are awash with cash after taking an unprecedented 489 billion euros ($625.8 billion) in the ECB's first-ever three-year liquidity operation late last month, and are mulling what to do with the money in the longer term.

The liquidity operation was designed to underpin banks' finances and hopefully repair some confidence in the sector, but the sovereign debt crisis means many institutions still lack enough trust to lend to each other and prefer to stash their money at the ECB.

The 455.299 billion euros ($582.79 billion) in deposits topped the previous record high of 453.181 billion ($580 billion) euros reached on Wednesday.

With total ECB lending at 685 billion euros ($876.8 billion), banks are returning two-thirds of the money back to the central bank.

The ECB is worried that the euro zone could see a credit crunch and has responded by flooding the money market with cheap cash, offering banks unlimited funds in maturities ranging from one week to three years at a rate of 1.0 percent.