Euro zone money markets returned to growth in second quarter: ECB

FRANKFURT Wed Nov 6, 2013 5:34am EST

FRANKFURT (Reuters) - Turnover in euro zone money markets increased in the second quarter of this year from the same period a year earlier, but unsecured lending shrank to a 10-year low, a European Central Bank survey published on Wednesday showed.

The annual survey, carried out between April and June, showed that the unsecured market contracted to the lowest level since at least 2003 and is less than half the size it was 10 years ago.

Cash borrowing by the 104 banks across the 17-country currency bloc participating in the survey fell by 44 percent from the second quarter of last year, with trading concentrating on maturities of one week or less.

At the same time, the secured market grew by 17 percent, to 30 trillion euros, with overnight lending showing a 27 percent growth rate. Total money-market turnover increased by 3 percent to 75 trillion euros after a fall of 18 percent last year, the ECB said.

"Perceived efficiency and liquidity conditions in the unsecured market improved only marginally and remain rather low," the ECB report said.

"As regards the secured market, perceived efficiency and liquidity conditions improved marginally as well, but from higher levels than the unsecured market."

Banks participating in the survey said that they do not expect significant changes to their interbank lending volumes.

"The overall results suggest that conditions are stabilizing," the ECB said.

The ECB has extended its promise to lend banks as much cash as they want in maturities up to three months until at least July of next year to support banks which remain locked out of open markets. It also lent banks more than 1 trillion euros of 3-year funds in December 2011 and March 2012.

The annual survey also showed that banks increasingly use central counterparties for settlement, with 71 percent of all bilateral repo transactions being cleared by them, up from 56 percent in the same quarter a year earlier.

(Reporting by Sakari Suoninen; Editing by Paul Carrel)

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