The European Central Bank drained euro 173 billion ($242 billion) in overnight funds from money markets after being swamped with record deposits from banks.
The ECB had offered to remove up to ¤200 billion at a fixed rate of 4.25 per cent. Banks yesterday deposited a record euro 102.8 billion with the ECB overnight and borrowed euro 15.9 billion at the emergency marginal rate, the most since 2002. The ECB's deposit rate is 3.25 per cent and the marginal lending rate is 5.25 per cent.
“We're seeing a kind of market failure,” said Michael Schubert, an economist at Commerzbank AG in Frankfurt. “The ECB can do nothing but treat the symptoms. The situation won't normalise as long as we see negative surprises in the financial sector.”