Banks Paid to Borrow From Each Other
Via massive QE purchases of bonds, ECB president Mario Draghi is flooding Europe with cash that European banks don’t want and cannot use.
One curious result of unwarranted QE is a negative interbank lending rate:Â Banks Paid to Borrow as Three-Month Euribor Drops Below Zero.Â
 Banks in the euro area can now get paid to look after each others’ cash for three months as the European Central Bank’s bond-buying program floods the region’s money markets with excess liquidity.
The euro interbank offered rate, or Euribor, for that time period dropped to minus 0.001 percent on Tuesday, according to data from the European Money Markets Institute. That’s the first negative reading since Bloomberg started collecting the data at the end of 1998. The index represents the average rate at which the region’s banks say they see each other lending in euros for three months.Â
Money-market rates have declined after several moves by the ECB. In June it introduced a negative deposit rate, meaning that commercial lenders were required to pay a fee to park their excess cash overnight with the Frankfurt-based institution. The ECB lowered the rate to minus 0.2 percent in September. Then in March this year the central bank started buying government bonds under a 1.1 trillion euro ($1.2 trillion) quantitative-easing program aimed at boosting growth and staving off deflation.Â
“Excess liquidity keeps flowing into the system week by week because of the QE program,†said Nikolaos Panigirtzoglou, a strategist at JPMorgan Chase & Co. in London. “Banks find themselves inundated with deposits but they don’t want to pay the ECB for parking their money there. Instead they’d rather lend the cash in the interbank market.â€
“It’s good news for borrowers, not so good news for lenders,†O’Hagan, Paris-based head of European rates strategy at the French bank. “Mr. Draghi wants us to spend the cash, not keeping it in Euribor. The purpose of QE is to get us to take on some risk.â€
