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Money markets ecb borrowing rise suggests greek banks return

* Three-month ECB borrowing rises* Suggests Greek banks extending funding maturityBy Kirsten DonovanLONDON, June 27 An increase in borrowing of three-month funds from the European Central Bank on Thursday points to recapitalised Greek banks shifting back to the ECB for their longer-term funding after being forced to rely on domestic emergency liquidity facilities. Banks borrowed 26.3 billion euros in three-month funds , versus a maturing amount of 18.1 billion euros . That number is not the whole story however, as the maturing operation had originally totalled 25 billion euros but 7 billion euros was repaid in May. Analysts believe this repayment was by Greek banks no longer eligible to take part in ECB tenders. Weekly borrowing also rose at the ECB's regular Tuesday tender, with 180 billion euros taken up compared with 167 billion the previous week and up fourfold in the last month.

"The increase...alongside the recent drop in emergency lending fits with the notion Greek banks who were shut out of the ECB are now returning," said Rabobank rate strategist Richard McGuire."But that does nothing to change the fact that financial institutions in Greece and indeed the wider periphery face ongoing significant restraints, and their sole lifeline is the public sector."Wednesday's three-month tender is the first that some Greek banks have been able to take part in since being recapitalised at the end of May.

The early repayment of more than 30 billion euros of longer-term ECB financing earlier this year - including from the recent three-year funding operations - suggested some banks were no longer eligible to borrow from the central bank. At the same time there was a sharp rise in the use of Emergency Liquidity Assistance (ELA) which analysts said pointed to Greek banks having to change their source of funding after being left undercapitalised in the wake of the country's debt swap. Since the Greek banks have been recapitalised and are again eligible for ECB funding, take-up at the one-week operations has soared.

For example, in the last week of May, banks borrowed 51 billion euros in seven-day funds, which more than doubled to 119 billion in the first week of June, according to ECB data. At the same time, ELA borrowing has decreased by over 60 billion euros during June. The take-up at Wednesday's three-month operation suggests the Greek banks are now replenishing their longer-term ECB borrowing. However, steady usage of the central bank's deposit facility indicates that overall banks are not hoarding more cash."Over the past few weeks we've seen a continual rise in the weekly tender and consistent with this are indications of ELA facility usage declining," said RBS rate strategist Simon Peck."As excess reserves remain fairly stable, it's just a change of funding source rather than an increasing need for cash."

Money markets euro rates ease but record cash parked at ecb

* Liquidity glut pushes interbank rates lower* Banks park record amounts of cash at ECB* Interbank lending largely frozen due to debt crisisBy Emelia Sithole-MatariseLONDON, Jan 6 Interbank rates hit their lowest in nearly nine months on Friday, weighed down by a glut of liquidity in the euro system but interbank lending remains largely frozen as the euro zone debt crisis batters investor confidence. Italian bank UniCredit did little to foster confidence in the European financial sector after it was forced to deeply discount a planned one-for-one equity rights issue, highlighting the problems banks face raising funds. The European Central Bank pumped almost half a trillion euros in three-year loans into the system last month in an effort to ward off a fresh credit crunch, but most of these funds are making their way back to the bank's overnight deposit facility.

Banks parked a record 455 billion euros in overnight deposits at the ECB, data showed on Friday, reflecting their preference for the safety of the central bank to the higher interest rates they could get from lending to each other. They are currently returning to the ECB around two-thirds of a total 685 billion euros it has lent them, including from last month's unprecedented three-year liquidity operation."Risk aversion continues to dominate ... Actual trading is still very much on a name-specific basis," Kevin Pearce, senior broker at ICAP, said."Trading in the week remains thin on both a reluctance to lend and, with banks so long of liquidity, a lack of general bids."

The hunt for safety is also evident in moves at the short end of core euro zone debt curves, with benchmark German Treasury bill yields falling further into negative territory, indicting investors are willing to pay to hold the paper. The injection of cheap funds from the central bank has, however, helped ease some of the tensions in money markets and is keeping interbank offered rates subdued. London interbank offered rates for three-month euros have fallen around 30 basis points since late October to 1.22857 percent, their lowest since last April. Equivalent Euribor rates are also at their lowest since April.

But while the excess is seen keeping key euro priced money markets rates subdued, analysts say dislocations in the interbank markets are likely to remain elevated for as long as the euro zone sovereign debt crisis remains unresolved."Euribor fixings are dropping but there's little turnover behind those rates so it's not an indication to say things are getting better," said Benjamin Schroeder, a strategist at Commerzbank."We've seen an improvement but the underlying problems have not been solved."Analysts hold little hope that a meeting between German and French leaders on Monday will advance the search for a resolution to a crisis now in its third year. Angela Merkel and Nicolas Sarkozy are instead expected to focus largely on strategy for a European Union summit on Jan. 30.