European Banks Deposit Entire LTRO, And Then Some, With ECB As Deposits Approach €500 Billion

Tyler Durden's picture

Back on December 21, the day when the deus ex 3 year LTRO was completed and €489 billion in gross capital was provided to banks at a 1.00% cost, of which €210 billion was net new incremental capital (pro forma for rolling maturities), the ECB deposit facility usage was €265 billion. As of Friday, the ECB announced deposits have grown to just shy of €500 billion, or a new record of €493 billion (which pays banks just 0.25%). In other words, between the LTRO effective date, and today, an additional €228 billion has been deposited, or more than the entire LTRO! And so Sarkozy's carry promoting dreams are entirely dashed, as instead banks end up paying €1.6 billion a year net just to hold the €210 billion with the ECB. In the meantime, the question becomes whether banks are already preparing for the February 29 3 year LTRO next? Check back when the deposit facility usage hits €700 billion in 2 months as banks stash aside about $1 trillion in capital shortfall cash with the central bank. And rising.

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Ancona's picture

So, if the banks are shoring up reserves with this money, and borrowing from corporations as well, while still afraid to lend to one another, how long before we see a complete freeze up? Things are starting to get pretty real over there, and it should be but a matter of time before the threads start to unravel. Should make for an interesting month, that's for sure.

hedgeless_horseman's picture



So, if the banks are shoring up reserves with this money...

...while the ECB's reserve requirement is HALVED THIS WEDENSDAY from 2% to 1%..."to support bank lending and liquidity in the euro area money market."

"Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong."  -Ayn Rand

Premise: European banks are loosening - evidenced by lower reserve requirement

Premise: European banks are tightening - evidenced by increased ECB deposits

Which premise is wrong?  Neither.  The Central Bank wants to loosen, while the commercial banks want to tighten. 

Zero Debt's picture

Soviet Union: Five Year Plan

Communist China: Five Year Plan

Nazi Germany: Four Year Plan

ECB: Three Year Plan

The comrades at ECB are surely bold! Five years of achievement in three years is a glorious target indeed! Hail to our leaders! The best and the brightest!

EhKnowKneeMass's picture

Hey, what do you know. The world's largest "democracy" - India - has a five year plan, too.


Q. What do you call Communism/Oligarchy/Fascism/Plutocracy/Monarchy masquerading as the "world's largest democracy"?

A. Why? India, of course!!

JPM Hater001's picture

Again, you learn more here by accident than elsewhere by design.

economics1996's picture

"..while the ECB's reserve requirement is HALVED THIS WEDENSDAY from 2% to 1%..."to support bank lending and liquidity in the euro area money market."


Manthong's picture

With all the fuss, you'd think they were talking about real money.

fonzannoon's picture

Who was buying those Italian/Spanish bonds last week then?....Confusing.

Chief KnocAHoma's picture

As Austin Powers would say - "Whoop-te-do Basil, but what does all that mean?"

Please speak slowly and explain this to me like I was a five year old.

Zgangsta's picture

"Just go over there to mommy, and let the grown-ups handle this."

GMadScientist's picture

Banks are making nifty bunkers out of excess cash in preparation for the giant shitstorm they now will hit soon.

Best case, they're hoarding to buy into the "save the zooro" plan in Feb...worst case, keep an ear out for air-raid sirens.

Chief KnocAHoma's picture

Thanks GM,

Now see that wasn't so hard. And if I understand you... this is bad.

"Crossing the streams would be bad."

"Could you explain that. I'm kinda fuzzy on the whole good - bad thing."

economics1996's picture


Excess reserves in one of our local banks are 22%.  FYI ZHers this is the exact same shit that happened in the early 30s, the Fed was pumping billions into the monetary base with the FOMC, people freaked out, and the shit crashed, run on banks, the whole fucking nightmare is being repeated.

End the Mother Fucking Fed.

Thanks for giving a strait answer, there is never a stupid question.


BW's picture

The world of Virtual Currencies.

agent default's picture

There is a lot of tension building up, there is a lot of fear, but the media are better at detracting attention away from it then they were in 2008.  That's the only difference.  In reality 2008 was a precursor, things are much worse now.

economics1996's picture

If a Republican was president we would have Tyler on CBS every night giving a update.  Because we have a affirmative action "cool" Negro president we get crickets.

Irish66's picture

Is the ECB gonna offer direct deposit for your paycheck because it looks like all

corporations have found a new bank?

mayhem_korner's picture



Right after they complete the IPO...

RMcDingo's picture

There are actually two deposit items you should watch, not just the deposit facility.  The other is the current account holdings, which is basically bank reserves.  Cash flows back and forth between the two for seasonality purposes related to bank reserve requirements.  That is why in your chart you see the deposit facility suddenly fall considerably on the (I believe) first or second Tuesday of every month.  These two facilities are intertwined.  Thus, currently the aggregate bank deposits held with the ECB are at EUR626 billion, which is actually down EUR64 billion from the EUR690 billion it was at after the LTRO initially funded. 

Larry Darrell's picture

Assuming you are reading this correctly and the combined accounts are down EUR64 billion, the next question is this:

Which direction has this number been moving over the past few weeks since the LTRO?  In other words, was the initial combination a jump down of only, say EUR 35 B and the pair shows some improvement?  Or, was the initial jump a kneejerk down of say, EUR 100 B, and now the metric is deteriorating?

Thanks in advance.

RMcDingo's picture

If you look at the aggregate ECB balance sheet that it posts every week, you can see borrowing from the ECB has fallen from EUR 879 billion post-LTRO to EUR 816 billion as of Jan 12th I believe.  On the ECB deposit front, this EUR 690 billion on Dec 22 (post-LTRO) stayed heightened until Dec 28th (EUR 652 billion) and has hovered between EUR615 billion and EUR 635 billion over the past 2 weeks.  Hope this helps.  My personal view is this is a temporary blip and things continue to deteriorate. Did anyone hear Jamie Dimon's hyperbolic but telling statement during JP Morgan's Q4 conference call? "There will be no interbank lending ever again!" 

Larry Darrell's picture

Missed that Dimon comment, but he's a pathological liar anyways.

There has to be bank to bank lending going on still: see comment from poster below regarding "recycled shit."

Edit:  I guess you could look at Dimon's comment in another light.  There will be unlimited interbank lending of the valueless paper printed by the central banks, but going forward no one is ever going to loan out any real asset backed "money."

SDRII's picture

Dimon also was cheering the LTRO and suggested that it takes the issue of refi off the table this year.

Tyler Durden's picture

Let's see here for the "intertwined" picture...

Urban Roman's picture

Looks like a big gray iceberg in the center of that chart there.

[edit] Oh now I see. They hit the gray iceberg a couple years ago. Now headed for the purple spike on the right edge. Had to zoom in to see it on this netbook.

Larry Darrell's picture


Thanks for the chart porn.  It's much appreciated.


Cast Iron Skillet's picture

I wish I uderstood what I am seeing ... Is the point that the banks are borrowing a lot more long-duration (purple=3y) money from the ECB  than they were previously? And if I recall correctly, the LTRO-Thingy was of three year duration, correct?

But ... I still don't know what the hell it means, sorry if i'm dense.

Larry Darrell's picture

Let's start with the original article up top.  Then we can dive into our side discussion in other posts.

Main article take-aways:

1)  ECB allowed banks to borrow EUR 210 billion in new money at an interest rate of 1% via the LTRO program

2)  Looking at the amount of money on deposit at the ECB by the banks, a little more than EUR 210 billion has been deposited there since the LTRO was introduced

3)  The ECB only pays 0.25% interest on reserves deposited with them

Therefore, it is Tyler's assertion that the banks took money which they are paying 1% to borrow, and putting it to work in something that only returns 0.25% -- a guaranteed loss.

This would be like you borrowing money against your mortgage line of credit with the explicit purpose of investing it in something which returns less than the interest rate you pay.  It's idiotic.


JPM Hater001's picture

And the fine point tip on the chart is shorter durations are chosen when flexibility and concerns about "where to keep your money" come into play.  And look at the far right of the chart...what's that starting to sneak in?  Is that Insecurity?  Why keep money at the ECB?  Because it cant go broke.  Although it needs authority it, like the Fed, can always print you some fresh currency.

Am I close Tyler?

Edit: This is imporant-It isnt the grey you need to worry about, its the tiny purple line across the top representing 3 month durations.  Take a closer look at the flying saucer of purple on it's side at the far right.  At first glance I only saw the grey...The grey worried be since we have seen that before...the purple trend...that's all new.

economics1996's picture

The banks are preparing for bank runs.

JPM Hater001's picture

Yes.  Or a move out of the Euro.  Which is the same as a bank run I guess.

Larry Darrell's picture

Now, on to RMcDingo's post.

He asserts that you can't look at the ECB deposits in a vacuum, but also need to include their current account holdings (bank reserves).  This is the money the banks have to have on hand in order to meet currently required capital ratios.

Total Available Capital = Deposits at ECB + In House Bank Reserves

He notes that in the chart at the top in the main article, you see a steep drop in the amount of money deposited at the ECB at regular intervals as the banks have to move money from the Deposits at ECB to In House Bank Reserves  for bookkeeping purposes (monthly audits or some shit, who knows).

However, after this happens each month, the chart shows the money moving back over to Deposits at ECB.

My original question to him was are things showing improvement (Deposits at ECB continue to shrink) or continued deterioration (Deposits at ECB increase again after the monthly bookkeeping).

His reply was that he sees continued deterioration, and the drop in Deposits at ECB is a one off due to the monthly transfer of capital.  If the pattern in the top chart in the original article holds true, I don't see how he could be wrong.

Larry Darrell's picture

Finally, Tyler was nice enough to chime in with us and put up a chart.

This chart shows total BORROWINGS by the banks from the ECB.  This needs to be juxtaposed with the chart in the original article which shows DEPOSITS by the banks at the ECB.

And the Borrowing chart is a little confusing.  The numbers on the Right Hand Axis don't line up well with the colors representing them unless you blow up the chart.

The takeaway, as pointed out by JPMHater, is the SURGE in 3 Year borrowing from essentially zero pre - LTRO to EUR 489 billion as of the time the chart was created.  Concurrently, according to the chart (and it is hard to make out even when you expand it), borrowings of all of the shorter dated maturities have fallen recently.

Tyler's point is most likely this:  How bad is it really in Europe when banks will take a loss on capital just to have some available NOW to draw against as needed.  It's like a PayDay Loan service, but these are not small numbers.


Crack-up Boom's picture

Very helpful!  Thanks form the not stupid but sometimes ignorant!

financial apocalyptic contagion's picture

dude larry,

u shud run a parallel blog explaining the complicated tyler posts in laymans terms
id read that shit everyday

kennard's picture

The media are starting to break the oath of silence and report the truth about last month's events:


Havana White's picture

How and when does the GoldmanSachs-run Fed step in to push this developing problem back, at least to beyond November?  After all, without saying much to the U.S., it -- the Fed -- has been running an IV across the Atlantic for at least several months now.

StychoKiller's picture

This makes about as much sense as the underpants gnomes' plans!

falak pema's picture

when the LTRO becomes LRTC. 

LTRO : long term refinancing operation

LRTC : Long range total costs (liabilities).

Mamma mia! Merkozy up the creek. Merkel didn't want Euro bonds and joint and several ECB, it got them the sovereign spreads; Sarkozy proposed LTRO as back-up liquidity fund which is going nowhere except into negative return zone. How to add costs to the already inordinately high spreads that the sovereigns pay. In the end its the Nation states of Euro zone who'll carry the collective buck both of sovereign debt inflated yields as of private bank defaults. 

No wonder Merkel wants Euro sovereign bond purchases by local institutions and they hold and chill until hell freezes over. Keep that crazy market out; verboten!

BW's picture

Their ponzi can go on until all interest rates are at zero.  We are a years away from this.  The only way to to stop it now, is politically.

Chief KnocAHoma's picture

And why would it stop then. They can just keep recycling the same shit from this book to that one. The only thing that can kill it is a loss of belief.

When we finally realize that the emperor has no clothes, there will be blood. But maybe we don't want to know the truth. Maybe it is easier to just play in the system, drink vinte mocas, and watch the nfl.

This weekend I wasted 1.5 hours watching Mike Ruppert's Collapse. He is so negative and bat shit crazy that he just might fit in on this board. He sees failure everywhere, but you know what...humans can adapt and overcome.

At the end of that piece of shit movie they disclose that Ruppert is facing eviction from his rental home. He is so fucking busy screaming that the emperor is naked, that he forgets to live his life. Between that fact and his chain smoking I began to realize, yeah it sucks, but get up and live. The sun will come up tomorrow, and shortly after that the kids will be hungry. So go figure out how to make some bacon. Some kids are gonna starve before this is over, but it ain't gonna be mine

AbuSous's picture

When my grandfather wanted to insult some one he called him: Recycled shit.


Draghi is recycling the shit that he pumped into the banks, and he had the odasity to claim that the banks who deposited the money are not the same one who borrowed it to begin with.


Either he is a liar or the banks borrowed paid it to other banks who ended up depositing at the ECB

847328_3527's picture

Why doesn't the ECB print more money and pay then 2.5% in those reserve like I read the Fed does?


BW's picture

Give them a chance, they will get to that.

Maroon Phoenix's picture

You don't have to outrun the bear.  You just have to outrun the guy next to you.

usikpa's picture

What makes you all think the banks that make these deposits with the ECB are exactly the same ones that took part in LTRO?