International Finance: ECB Soaks Up $250 Billion as Loan Levels Lag
FRANKFURT -- The European Central Bank on Tuesday drained 169.68 billion euros ($250.82 billion) in overnight funds from the money market amid signs that the ample liquidity it has provided to banks isn't fully flowing into the economy.</br></br>The ECB mopped up excess reserves held by banks in a special fine-tuning operation, paying them 0.8%, which was above the overnight interbank interest rate of 0.5%.</br></br>The central bank slashed interest rates and pumped huge amounts of extra funds into the banking system -- in return for adequate collateral -- after the liquidity shortage that followed the collapse of U.S. investment bank Lehman Brothers last fall.</br></br>While those actions have helped keep banks afloat, the money hasn't been fully passed on to the wider economy, analysts say.</br></br>ECB President Jean-Claude Trichet last Thursday chided banks in the 16-country euro bloc for failing to pass on more liquidity to households and businesses.