The Frankfurt-based ECB said today that 85 banks bid a total of 194.2 billion euros ($259.4 billion) for seven-day term deposits. It had aimed to drain 203.5 billion euros, the amount its bond purchases have created since the program began in May last year.
“It’s just another indication of how uncertain the situation is,” said Michael Schubert, an economist at Commerzbank AG in Frankfurt. “At the moment, banks are holding more cash than necessary. There’s a lot of caution.”
While the ECB has failed to “sterilize” its bond program at least four times before, this is the first time since the central bank expanded its purchase program to buy Italian and Spanish bonds, which it started in August. The ECB tries to drain the same amount from the banking system each week that its purchases have created to ensure they don’t swell the money supply and fuel inflation.