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.
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.
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.