Banks stock up on ECB money in tense week for Spain’s future

Euro zone banks borrowed more much more than expected at the European Central Bank’s weekly auction on Tuesday, stocking up on cheap cash in a week marked by market concerns about a potential break away of Catalonia from Spain.

Thirty-three euro zone banks took up a total 21.3 billion euros ($25.1 billion) at the ECB’s auction, which allows them to borrow at a zero interest rate for one week to meet their day-to-day obligations.

This was six times more than analysts polled by Reuters had expected and the highest amount since March, breaking a trend that has seen banks steadily reduce their reliance on ECB cash since 2015.

A week earlier, the ECB had lent just 3.2 billion euros in its Main Refinancing Operation (MRO).

Dealers and analysts speculated this could be a sign that banks were fearing jitters on the funding market if Catalonia breaks away from Spain, potentially cutting off its banks from ECB liquidity.

“Catalonia seems the most likely reason for the rise in MRO usage,” Peter Chatwell, an analyst at Mizuho in London, said.

Two bank dealers who spoke to Reuters on condition of anonymity shared similar concerns.

Some Catalan residents have been shifting their bank accounts to lenders and branches in other regions of Spain and the country’s borrowing costs hit six-month highs since a referendum on Catalan independence on Oct. 1.

The majority of Catalans did not turn out for the vote and the Spanish government declared it illegal, sending riot police to prevent people from casting their ballots.

But secessionist leaders said the referendum had produced an overwhelming majority for breaking away from Spain and their leader was due to deliver a speech later on Tuesday in which he could ask the regional government to declare independence.

The ECB, which declined to comment for this article, does not provide data on how much individual banks or countries borrow at its auctions.
Source: Reuters (Reporting by Francesco Canepa, Giulio Piovaccari, Balazs Koranyi, Frank Siebelt and Andrea Lentz; Editing by Robin Pomeroy)