Saturday, July 14, 2012

A massive drop in the ECB Deposit Facility balance is due to zero rate

As discussed in the earlier post, the zero rate in the ECB Deposit Facility means there is no need for banks to move excess reserves back and forth between the reserve account and the Deposit Facility just to capture some of that 25bp the ECB used to pay on deposits. Banks are now comfortable just leaving more funds in the reserve account ("current account") for operational ease. That's why we've had such a drastic drop in the ECB Deposit Facility in the last few days.
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