Europe's Money Market In The Early Stage Of A Freeze-Up

Chart

Here’s a warning sign of deteriorating confidence in the European financial system.

European banks are increasingly parking capital with the European Central Bank (ECB) instead of loaning it out short-term to their peers. This is despite the fact that they earn far less interest (0.25%) leaving their money with the ECB.

WSJ:

One or more banks parked around €268 billion in the ECB’s deposit facility overnight starting Tuesday, data from the ECB showed Wednesday. If markets are functioning properly, banks use the facility to the tune of only a few hundred million euros.

The Wall Street Journal also reports that 35 bidders decided to take part in the latest ECB auction today (Wednesday) for 3-month money, which is over a 50% increase from the 23 bidders who showed up for the previous auction in February.

The chart we show above is the 3-month ‘EURIBOR‘ rate, which is the rate at which banks will lend euro-based money to each other. The anecdote above means we could see this rising substantially in the future should banks increasingly shun each other.

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