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Full Frontal Of ECB's ZIRP: Record €484 Billion Drop In Overnight Deposits

Tyler Durden's picture




 

A week ago, the ECB decided to lower its deposit rate to 0%. Today, we get the first real full frontal visual of what this really means, and how banks react under ZIRP. As the ECB just reported, overnight deposits parked in its electronic basement by member banks plunged by the most on record, or €484 billion in one session. This is a lot of money. And this money has to go somewhere. Judging by the reaction in European equities, which continue sliding, bank did not put the money in stocks. Also, judging by the continued slide in the EUR and the daily record negative yields in core European bonds, banks are aggressively buying up "safe" debt, as well as that of other currencies, to place this ZIRP cash somewhere liquid regardless of location, leading to one-time strange events like yesterday's "WTF" 10 Year auction. If indeed the case, look for some serious insanity in the form of record Direct take down in today's 30 Year auction. Which, along with other much more weird things, is to be expected when one has a nearly half a trillion fund flow overnight, and don't forget to add hundreds of billions in now defunct European Money Market funds which have to be parked somewhere as well. One thing is certain: goodbye 0.25% deposit income on nearly €1 trillion in mostly German and Dutch-bank sourced cash.

ECB Deposit facility usage:

Daily change in the facility usage:

 

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Thu, 07/12/2012 - 06:50 | 2609211 MillionDollarBoner_
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be nice if a bit trickled into PMs.

oh, wait a minute...that's against the rules, right?

Thu, 07/12/2012 - 06:58 | 2609225 agent default
agent default's picture

It is, but less than 1% of the total volume is settled physically.  The PM market is just paper trading. And when reality hits,  the evil gold/silver bugs will be blamed for collapsing yet another floor of the system.

Thu, 07/12/2012 - 07:05 | 2609247 Dr Benway
Dr Benway's picture

They be manipulating gold down like crazy because at some point they will need to QE and if they haven't beaten gold down greatly first then a big price rise might embarass them.

But anyhoos. The traditional bank model is making money off the difference between lending and borrowing, right? So who is expected to put up deposits for zilch return? Maybe this is a stupid question.

Thu, 07/12/2012 - 07:11 | 2609262 GetZeeGold
GetZeeGold's picture

 

 

It's a new record......that's good right?

 

Thu, 07/12/2012 - 08:34 | 2609463 WmMcK
WmMcK's picture

Records were made to be broken.

Thu, 07/12/2012 - 11:39 | 2610036 Bay of Pigs
Bay of Pigs's picture

Why isn't this story pinned at the top of the page all day long?

WTF is going on around here anyway Tyler(s)?

Thu, 07/12/2012 - 12:15 | 2610143 True.North
True.North's picture

And the way things are going, money markets are too.

As noted, that half trillion will be invested in US and 'Core' European risk-off assets, resulting in a further slide in yields. How the hell does this not absolutely break the money markets? Unless they're hiring Bruno Iksil to make up the difference, is breaking the buck (again) inevitable?

Thu, 07/12/2012 - 07:20 | 2609295 agent default
agent default's picture

They can borrow from the central banks at almost 0% and lend it back to you at 15% through credit cards or to the government at 2% or whatever.  Part of the reason we are in this mess.

Thu, 07/12/2012 - 09:15 | 2609579 Panafrican Funk...
Panafrican Funktron Robot's picture

Probably due entirely to regulatory requirements regarding capital set-aside, there is no logical reason to hold steadily declining fiat at 0% interest.

Thu, 07/12/2012 - 08:09 | 2609398 Fips_OnTheSpot
Fips_OnTheSpot's picture

the money went to their accounts in the ECB - since "ever" there's 0% interest. So the banks just "save" the change in booking between account and overnight facility.

The aggregate of ECB accounts rose from 74 to 540 bn EUR. (via FTD: http://www.ftd.de/finanzen/:misstrauische-banken-nullzinspolitik-der-ezb... )

Thu, 07/12/2012 - 09:06 | 2609557 stocktivity
stocktivity's picture

God help us all when our treasury market turns and this money starts getting pulled out.

Thu, 07/12/2012 - 17:42 | 2611208 agent default
agent default's picture

If this money is pulled out of treasuries and starts circulating in the markets, then not even God will be able to help those who are not in highly liquid hard assets in physical form.

Thu, 07/12/2012 - 06:51 | 2609212 moskov
moskov's picture

Retarded Europeans believe dollar will save them. Haha!

Thu, 07/12/2012 - 06:51 | 2609213 BlackholeDivestment
BlackholeDivestment's picture

...looks like a surfer caught under a wave mutilation. http://www.youtube.com/watch?v=hvHJOus1pRo

Thu, 07/12/2012 - 06:51 | 2609215 slackrabbit
slackrabbit's picture

The bond flight to safety black hole begins...

Thu, 07/12/2012 - 07:38 | 2609330 max2205
max2205's picture

I think it's a great time to start a Bank. Who's with me!?

Thu, 07/12/2012 - 06:52 | 2609217 Bogdog
Bogdog's picture

Is this the beginning of the end for the Euro? Or the end of the beginning? 

The overnight for EUR/USD is very ungood.

Thu, 07/12/2012 - 06:53 | 2609219 swissaustrian
swissaustrian's picture

Spike low to EUR/USD 1.20 in a matter of days. Then short squeeze, after that to 1.10. Then QE3.

Thu, 07/12/2012 - 07:17 | 2609281 GetZeeGold
GetZeeGold's picture

 

 

Sounds like a plan.

Thu, 07/12/2012 - 08:48 | 2609510 GCT
GCT's picture

I am thinking 1.15 and the fed is going to print!

Thu, 07/12/2012 - 08:54 | 2609528 Arnold Ziffel
Arnold Ziffel's picture

A super Strong USD is exactly what we need to spur exports, right? Foreigners will want to buy our stuff at 30% higher price, right?

Thu, 07/12/2012 - 07:29 | 2609312 eclectic syncretist
eclectic syncretist's picture

Some is going under the mattress.  Some is going back to the nothing it was before the central bank imagined it.  Either way it crashes markets.

TPTB must have their positions on already.  Hopefully readers here have done the same.  There has been, and still is today, plenty of time.

Thu, 07/12/2012 - 08:31 | 2609455 WmMcK
WmMcK's picture

double plus ungood.

Thu, 07/12/2012 - 06:52 | 2609218 swissaustrian
swissaustrian's picture

Where's the money going?

I'd say German bunds and other "safe" bonds.

Might be a good time to finally make gold a tier1 asset.

Thu, 07/12/2012 - 07:29 | 2609310 Zero Debt
Zero Debt's picture

The advantage of using gold is that you don't need to dig up any more of it or get anyone deeper in debt to hold a reserve asset, just change its nominal value and voila it's done

Thu, 07/12/2012 - 07:36 | 2609322 eclectic syncretist
eclectic syncretist's picture

They'll pay you to borrow money from them!!!!!!

That's a sustainable fiscal policy, don't you think?  Aren't our leaders brilliant?

Perhaps everyone will borrow all they can, put it all into gold and silver which mysteriously gets lost by their bank (I swear it was in my TBTF bank's safety deposit boxes, I'm suing), and then retire to a small South American country.

Thu, 07/12/2012 - 07:00 | 2609233 overmedicatedun...
overmedicatedundersexed's picture

this month things fell apart, how steep will the slide be from here?

Thu, 07/12/2012 - 07:38 | 2609326 eclectic syncretist
eclectic syncretist's picture

They manipulate it up, and then they manipulate it down.  Going down is usually faster.

Thu, 07/12/2012 - 07:04 | 2609243 Silversem
Silversem's picture

Gold will be asset number one in a not to distant future. Now i think is a very good time to invest in gold. It's relatively low right now and has been in a correction for some time now. I like to trade gold using cfd's. That way i can profit with leverage.

Thu, 07/12/2012 - 07:16 | 2609277 fonzannoon
fonzannoon's picture

What is the whole gold tier 1 asset thing about? Please explain if u don't mind.

Thu, 07/12/2012 - 07:25 | 2609306 fonzannoon
fonzannoon's picture

thank you much

Thu, 07/12/2012 - 07:52 | 2609359 GetZeeGold
GetZeeGold's picture

 

 

Gold will be asset number one in a not to distant future.

 

Get....Zee....Gold

 

Thu, 07/12/2012 - 10:07 | 2609253 PaperBear
PaperBear's picture

How much is there in the overnight deposit bucket ? That sounds like something that you would be pooping in if you couldn't make it to the toilet during a night's sleep.

Thu, 07/12/2012 - 07:10 | 2609258 JackT
JackT's picture

Corzined?

Thu, 07/12/2012 - 07:13 | 2609267 MillionDollarBoner_
MillionDollarBoner_'s picture

What follows is an attempt (possibly inept, apologies in advance) to figure the cascade to date and where the hot money will flow next.

1) Credit Crunch 2008 - liquidity dried in the financial sector - cash injected by CBs - since then QE1/2/Twist1/2/LTRO etc.

2) Banks hoarded cash - went into bonds, some stock pumping, overnight facility at ECB

3) Rates for ECB overnight facility just got unattractive - insufficient spread between loan rate and deposit rate - so money flowed out. Looks like it went into Treasuries, Bunds, Swiss deposits

4) In-flows to Treasuries yesterday bombed the yield. Does this mean that, over time, Treasuries, Bunds & Swiss deposits will suffer the same fate as the ECB overnight facility I.e. also lose their appeal due to insufficient spread between loan rate and deposit rate? If so, what then?

As I said, just a stab at identifying cause/effect. Maybe it gives us a clue on the next step(s) and how to play it? 

Comments?

Thu, 07/12/2012 - 07:17 | 2609282 disabledvet
disabledvet's picture

ooooops.

Thu, 07/12/2012 - 07:28 | 2609296 GetZeeGold
GetZeeGold's picture

 

 

Just wait for it.

 

The reason you call it shooting ducks in a barrel is first you put the duck in a barrel and THEN you shoot them.

 

Thu, 07/12/2012 - 08:30 | 2609450 WmMcK
WmMcK's picture

Damn, so that's my problem -- I've been using fish instead of ducks!

Thu, 07/12/2012 - 08:53 | 2609530 JackT
JackT's picture

Are you sure you have the correct order?

Thu, 07/12/2012 - 08:52 | 2609525 PMakoi
PMakoi's picture

Agriculture, Water, Packaged/Canned Foods, Warehouses to stuff non-perishable commodities into, Non-perishable commodities, Gold, Abu Dhabi, Singapore.  Popcorn, and a comfortable chair.

Thu, 07/12/2012 - 07:44 | 2609348 max2205
max2205's picture

Ben should be ashamed the 30 yr mortgage rate is 50% over the bond.

No wonder people won't bite on a house. 2.6% vs 3.35.

Mortgage rates spreads need to be at least 20%. And when the 30 yr hits 1.99 hopefully Ben will make sure the spread is like 20%. 2.4 rates will kick off the housing market again.

Thu, 07/12/2012 - 07:50 | 2609353 ciupaquo
ciupaquo's picture

si far, banks' money contnues to be parked at the ECB, they just did not transfer reserve deposits to the overnight accounts. In Italy, ROB (reserve deposits) has increased by the same amount as the decrease in the overnight facility usage. Rather, it should be quite surpring to read that EUR 325bn are still parked at the ovrnight deposit...the smae treasury guys say that this is why some banks are forced to hold this money there because the overnight is morer reassuring for big istitutional bank depositors while banks can withrdrw money they want from reserve accounts overnight (meeting the minimum reserve requirement, of course)  

Thu, 07/12/2012 - 07:51 | 2609354 Catullus
Catullus's picture

Lots of hot money sloshing around.

 

Thu, 07/12/2012 - 07:53 | 2609363 GetZeeGold
GetZeeGold's picture

 

 

Understatement of the century.

 

Thu, 07/12/2012 - 07:54 | 2609365 Peter Pan
Peter Pan's picture

Nothing makes sense anymore unless it is viewed in the context of a group of people making every attempt to prop up the unsustainable a little longer so as to enable their group to rape any remaining wealth in the economy.

Thu, 07/12/2012 - 08:05 | 2609385 midgetrannyporn
midgetrannyporn's picture

Are those borrowed reserves by any chance? The fed pays interest on borrowed reserves which is blatant theft.

Thu, 07/12/2012 - 08:11 | 2609404 miker
miker's picture

Live in Charlotte NC.  Used to be a BIG bank town.  Still lots of branches everywhere, BA, Wells, Fifth Third, etc. etc.  So they're building a new bank down the street from us.  Bank of Ozarks.  Going to cost alot for this branch...new building, lots of site work, vault, blah blah blah.  Is this fucked up of what?

Thu, 07/12/2012 - 08:24 | 2609438 nathan1234
nathan1234's picture

It's money being kept aside for their grand funeral

Amen

Thu, 07/12/2012 - 08:34 | 2609462 Byte Me
Byte Me's picture

So, the "money" just got reabsorbed by the eurozombie banks?

Can't see much of it switched currencies - or leaked into PMs....

Did the ECB just achieve the biggest vapourization in history??

Thu, 07/12/2012 - 08:54 | 2609531 onebir
onebir's picture

Hope the Fed takes note of this & doesn't cut IOER to zero in one go...

Thu, 07/12/2012 - 16:43 | 2611056 Catflappo
Catflappo's picture

If the rate had changed from 8.25% to 8.00% would the reaction be the same?   

 

Funny what a difference a 'different 25bps' makes!

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