News out of Europe has grown increasingly more positive of late, convincing some investors to question their strongly bearish views of how the crisis will play out.
At the very least, a look at the volume of funds at the European Central Bank’s deposit facility should give us pause. Deposits at the facility are still near an all-time high, falling for the first time since December only on the last week of January. High usage of the deposit facility indicates that banks are still incredibly wary of lending.
While this drop in deposits may indeed be the start of a positive trend, this is a data point we have to watch going forward, particularly with the second three-year LTRO coming up. After the last three-year LTRO, deposits at the ECB increased by 92.21% or €197.71 billion on average for the week—40.41% of the €489.19 billion in funding banks requested from the LTRO.
Looking forward to the end of February and LTRO: Round II, not only will we be looking at the extent of the funding banks ask for from the ECB (estimates are anywhere from €350 billion to €1 trillion or more right now) but the percentage of that funding which gets allocated for safe-keeping at the ECB’s deposit facility rather than re-invested in the market.
Check out the banks’ deposits at the EU lending facility over the last year (in euros):
Photo: European Central Bank