Banks parking more cash with European Central Bank

AP News
Posted: Oct 10, 2011 7:37 AM
Banks parking more cash with European Central Bank

Banks are parking more money overnight with the European Central Bank in a sign the eurozone debt crisis is unsettling the banking system.

Banks deposited euro255.6 billion ($347.1 billion) overnight Friday, the highest this year, the central bank said on Monday. That surpassed the previous year high of euro229 billion from Thursday.

The deposits suggest banks would rather stash money with the ECB than lend it to each other. Banks are afraid that other banks could suffer losses on Greek and other government bonds in case of a default _ and not pay them back.

The increase follows a worsening of fears about a Europe-wide banking crisis and credit crunch that could hurt global economic growth.

The governments of Belgium, France and Luxembourg have had to come to the rescue of Dexia, a bank that had trouble borrowing on the interbank credit market because it is heavily exposed to Greek and Italian bonds.

The Belgian government is stepping in to buy Dexia's retail operations there as part of a wider bailout that will see the three governments provide euro90 billion in funding guarantees.

Eurozone political leaders are working on plans to put more capital into banks across Europe to better shield them from the government debt crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy said Sunday night that they expected to come up with a plan by the end of the month but offered no details.