You’re looking at use of the European Central Bank’s marginal lending facility, which allows eurozone banks to pledge collateral in return for short-term liquidity. You can see there’s been a relative spike in usage over the past few days. On Tuesday, for instance, the ECB recorded €3.49bn in use.
Banks going to the ECB for overnight liquidity *sometimes* suggests stress in the market, and that’s an idea that’s already been picked up by a few market participants. Reuters for instance, reported on Wednesday that “traders said the recent increase . . . has fuelled speculation about who needs the money.”
A February 17 note from RBS’s Nick Matthews puts the issue in perspective:
One observation gaining traction in the market from the ECB’s daily liquidity conditions data is a marked increase in the use of the ECB’s marginal lending facility in the past four business days, which as of yesterday was Eur 3.49bn, after Eur 3.83bn on Monday, Eur 3.88bn last Friday and Eur 4.10bn last Thursday. While use of the facility has been decreasing (eg. by a further Eur 380mn yesterday), the amount remains admittedly high and has persisted now for a few days (by comparison, demand last year on average was Eur 0.90bn a day). That said, use of the facility has been much more elevated in the past, eg. as high as Eur 24.6bn in early October 2008 and Eur 16.0bn on average for the whole of that month post-Lehman.
When there is use of this facility then there is immediately speculation about the potential for bank(s) with funding trouble. Access to the ECB lending facility is anonymous and there is thus no way to tell what is behind this development. Clearly, a persistent use of the facility suggests there might be some bank(s) under pressure – maybe because of a mis-management of liquidity – and are going to the ECB for overnight funding rather than face the negative stigma of going into the market.
It is worth highlighting that on some occasions, use of the marginal lending facility can be because of calendar considerations. In particular, the last large use of the facility was on the 19th January when Eur 5.23bn was borrowed; however this coincided with the last day of the reserve maintenance period, implying a liquidity mis-management issue. The end of the last maintenance period was 9th February when there was a sudden Eur 2.23bn demand on the lending facility. In addition, a similar pattern to now was recorded back in November last year, when use of the lending facility went from Eur 3.40bn the day before the end of the maintenance period to broadly zero on the start of the new maintenance period and then back up to Eur 2.28bn the following day and Eur 2.52bn the day after that, after which it dropped back to more normal levels. Use of the lending facility at the start of the current maintenance period (last Wednesday, 10th February) also dropped back to a very low level of Eur 0.08bn from Eur 2.23bn the previous day, before demand jumped to its current levels.
Clearly the current usage of the lending facility is occurring at the start of the new maintenance period, but admittedly has persisted for longer than in November. One possibility is whether the slightly higher demand at the latest one-week main refinancing operations [MRO] (an additional EUR 5.8516bn) might reduce this figure (ie. implying that the demand will go into the weekly MRO). Although it was allotted yesterday, the weekly MRO doesn’t settle until today, so we shall be watching closely tomorrow the ECB’s daily liquidity data (for the 17th February) to see if demand for the lending facility has been switched into the weekly MRO. If not and the use of the lending facility persists, then this might be suggestive of a problem in the system and evidence of some signs of stress in the interbank market. In turn, that could have some relevance for the continuation of the ECB’s exit strategy from its unconventional measures in Q2 that it intends to announce on 4th March at the next ECB meeting/press conference. . .
In other words, if use of the lending facility remained elevated on Wednesday — when financing from last week’s MRO should have reached banks — there may indeed be some liquidity stress.
But it looks like February 17 liquidity data has just been published on the ECB website.
Use of the marginal lending facility is back down to a more normal €52m — suggesting demand has indeed switched into the MRO. So much for liquidity murmurs.
Related links:
So farewell, 12-month LTRO – FT Alphaville
The ECB ‘liquidity monster’ – FT Alphaville