Jump in emergency ECB borrowing pinned on Greek banks
FRANKFURT, March 20 |
FRANKFURT, March 20 (Reuters) - Banks borrowed over 11.5 billion euros of emergency overnight funds from the European Central Bank for a second day running on Tuesday, a spike money market experts put down to Greek banks juggling their cash because of the country' debt restructuring.
Banks are usually reluctant to use the ECB's instant access facility - also known as its emergency window - because it charges 0.75 percentage points more interest than normal ECB funding.
This week's jump, however, is the second time this month that overnight borrowing has surged.
Money market traders believe is it a knock-on effect of a complicated arrangement the ECB put in place to avoid Greek bonds becoming unusable in its lending operations following the country's debt swap deal currently going through.
The original plan, to use 35 billion euros ($46 billion) of EFSF bonds as a sweetener for the ECB to continue lending to banks with Greek collateral as normal, fell apart when the EFSF bonds couldn't be transferred to the central bank in time.
That forced the ECB to push the banks out of its operations and into the Emergency Liquidity Assistance (ELA) facilities that national central banks can provide.
On March 8, the ECB reopened its doors to Greek collateral after the EFSF bonds finally arrived and almost immediately use of the ECB's overnight facility jumped to over 15 billion euros.
It dipped below 2 billion after last week's injection of 7-day mainstream ECB funding but has spiked again as - according to traders - banks receive more of their collateral back and get it in shape again for the ECB's regular operations.
"I don't think it (the jump in overnight borrowing) is anything sinister," said one London-based money market trader. "The view in the market is that is just Greek banks after Greek bonds become ineligible earlier in the month."
A second trader added that it made sense for Greek banks to borrow overnight from the ECB.
"The ECB marginal rate is still cheaper than anything these banks could get on the street and it also ensures the collateral is visible to the central bank so it can be used in the weekly operation or the 3-month one that settles next week," he said.
A higher-than-expected uptake of new 7-day ECB funds on Tuesday also backed the theory. Banks took just under 60 billion euros, 18 billion more than last week and well above the 40 billion predicted by traders polled by Reuters. (for story click )
"I'm sure what we'll see is that pretty much all of this money (overnight borrowing) now switches into the MRO (ECB 7-day funding operation), and then next week it will go into the 3-month tender," the second trader added.
While heavy usage of overnight ECB funding can be an indication that a bank or banks - the ECB does not disclose who uses the overnight facility - are having problems getting financing, there are a number of other possible explanations.
Banks can also simply miscalculate their funding needs and take overnight ECB cash rather than risk their reputation by scavenging for money on the open market.
At the end of last year, overnight borrowing briefly surged to over 17 billion euros after Franco-Belgian lender Dexia had been bailed out. Earlier that year it also jumped as one of Ireland's banks prepared to sell off some of its assets, leaving it in temporary need of the funds. ($1 = 0.7552 euros) (Reporting by Marc Jones; Editing by Ruth Pitchford)
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