European Banks Slow Down Debt Repayment Schedules

The pace at which euro zone banks are repaying their crisis loans to the European Central Bank has slowed significantly as extra cash in the system reaches critically low levels.

Banks will return 1.558 billion euros ($2.14 billion) to the ECB on April 2, a lot less than this week’s repayments of 18.909 billion euros and also far below the 9 billion forecast in a Reuters poll.

Over the past three weeks, banks repaid in total around 40 billion euros, driven in part by the expiry of some of the sovereign bonds that they had bought with the cheap money. Lenders have also been shaping up their balance sheets for the review the ECB is making of their assets before it takes over banking supervision.

This meant that excess liquidity – the amount of money banks have beyond what they need for their day-to-day operations – fell to 104 billion euros on Friday, the lowest since late 2011.

It peaked in early 2012 at around 800 billion euros.

Overnight bank-to-bank borrowing costs are expected to move up once excess liquidity drops below a certain level, seen between 80 billion and 100 billion euros.

“It becomes a situation now, where the level of excess liquidity will have an effect on EONIA and this is a reason for banks to repay less,” said a money market trader who asked not to be named.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza