Euro banks suffer hangover from the recent cash injection

The European Central Bank went out of its way to make sure financial institutions in the euro zone had all the cash they need to survive. Given the industry’s response to the cheap credit, there will not be any more liquidity infusions like this.

The ECB opened the flood gates to unleash 530 billion euros — roughly $713 billion — on the world in the form of minimal-interest three-year loans.

Considering that cash injection was on the high end of economists’ estimates, the news was positive for the markets.

After all, all that money sloshing around the euro zone should help prevent a catastrophic credit crunch even if Greece somehow becomes the next Lehman Brothers-style default.

Unfortunately, instead of lending that money out or otherwise investing in growth-positive enterprises, it turns out that the banks simply hoarded $386 billion of the funds and returned most of it to their reserve accounts at the ECB.

In theory, the banks are taking a long-term loss if they leave all that money parked at an effective interest rate of 0.25%, but that is just an example of the amount of fear out there.

Either way, since the ECB talked this move up as being a way to get these funds moving, they are not likely to be happy about this.

Since the refunding news hit on February 29, the euro (FXE, quote) has actually given up another 1.7% of its value.

The banks are not rolling in ill-gotten gains here, either. Societe Generale (SCGLY, quote) has given up 7% since the refunding and Italy’s Unicredit (UNCFF, quote) has basically run a circle.

Even if things look bad in 2014 when these loans expire, do not expect another big move on this scale. On the other hand, if things were still bad enough for long-term refunding on this scale in 2014, there might not be a euro zone to worry about.

And the banks got pounded again today.

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