Nov. 17 (Bloomberg) -- German Deputy Finance Minister Joerg Asmussen said financial institutions are still relying on the European Central Bank for funding and governments can't revive interbank lending markets on their own.

``Volumes are still very low'' in the money market, said Asmussen at a conference in Frankfurt today. ``The state alone can't restore the necessary confidence among market participants. It is only able to replace it for some limited time.''

The ECB and other central banks have flooded the banking system with cash and cut interest rates in an attempt to revive the frozen interbank lending market while governments have moved to bail out stricken banks. The collapse of Lehman Brothers Holdings Inc. in September shattered confidence and brought money- market lending to a standstill.

Banks' overnight deposits with the ECB, which dropped to the lowest in a month on Nov. 12, have started to rise again and climbed to 163.8 billion euros ($208 billion) on Nov. 14. They touched a record 297 billion euros on Nov. 6.

Asmussen also said that reforms to the financial system can only ``minimize'' the fallout from future crisis and won't to be able to prevent them from happening.

``It's likely that the financial sector will be smaller in the future given its share of gross domestic product, it will be more transparent and it will be less profitable,'' said Asmussen. ``The financial sector won't return to the Stone Age, however.''

To contact the reporter on this story: John Fraher in London at jfraher@bloomberg.net

Last Updated: November 17, 2008 05:56 EST