FRANKFURT (MNI) – The European Central Bank’s decision back in July
to cut its deposit rate to zero led to concerns that credit
institutions’ access to funding could suffer further, as money market
funds possibly reduced their purchases of banks’ debt securities amid
lower net returns on short term assets, the central bank said on
Thursday.
“In such an environment, money market funds (MMFs), for instance,
experienced withdrawals in recent quarters,” the ECB said in its latest
Monthly Bulletin, adding that funds available for bank debt purchases
had also decreased.
“Such a situation could thus lead to further constraints on credit
institutions’ access to funding,” the ECB said. “Besides this,
forthcoming regulatory requirements regarding banks’ funding strategies
tend to favour retail funding sources over market-based funding. These
developments might thus weigh on banks’ security-based funding efforts.”
However, with the banking sector attracting and maintaining retail
deposits from the non-financial private sector, banks appear to have
anticipated potential funding issues, the bulletin continued.
“For instance, to the extent that the increase in overnight
deposits stems from money-holding sector entities’ selling of risky
non-bank assets to non-euro area residents, the respective flows
ultimately mirror an improvement in banks’ funding position,” the ECB
noted. “At the same time, insofar as the expansion in M1 deposits
reflects portfolio shifts at the expense of other bank liabilities,
banks’ funding position is concerned mainly with respect to its
maturity.”
— Frankfurt bureau: +49 69 720 142; email: frankfurt@mni-news.com
[TOPICS: TOPICS: M$X$$$,M$$EC$,MGX$$$,MT$$$$,M$$CR$]