Four years to the month since the global credit crisis began, the European Central Bank has emerged as the lender of first resort to the Continent’s broken banks. With the bond market shut off to all but the strongest lenders, the ECB’s unlimited loans are keeping the most afflicted banks in Greece, Portugal, Italy, and Spain afloat. “Banks are becoming more nervous about being exposed to other banks as they hoard liquidity and become more suspicious of other banks’ balance sheets,” Guillaume Tiberghien, an analyst at Exane BNP Paribas, wrote in a note to clients on Aug. 19.
On that date, banks deposited €105.9 billion ($152 billion) with the ECB overnight, almost three times this year’s average, rather than lend the money to other banks. They are also stockpiling dollars and hoarding cash in safe havens such as Swiss francs. “I’m not sleeping at night,” says Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. “We have moved into a new phase of crisis.”