(Reuters) - Liquidity levels in the euro money market soared to an all-time high on Friday, as the near half a trillion euros pumped into the system by the European Central Bank this week in its first ever three-year loans ballooned the amount banks were holding.
Banks borrowed a record 489 billion euros from the ECB earlier in the week in the first of two opportunities they will have to get the all new three-year loans from the ECB.
With the money now in banks' accounts, the amount of excess cash in the euro zone's financial system hit a record high of 483 billion euros, taking it soaring beyond the 350 it hit in mid 2010 after the ECB had pumped in three rounds of one-year funding.
This week's move by the ECB marks its most dramatic attempt of the crisis so far to bolster banks' finances. It is a tactic it hopes will minimize the chances of banks responding to the euro zone turmoil by slamming the brakes on lending.
As well as giving banks the opportunity to borrow direct from the ECB, the move works by making getting cash cheaper for banks as the heavy oversupply in the system puts downward pressure on the rates charged on normal bank-to-bank markets.
Three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, fell to 1.404 percent from 1.410 percent on Friday as a flood of new cash entered the financial system.
Longer-term rates also fell. Six-month rates ticked down to 1.658 percent from 1.662 percent, while 12-month rates eased to 1.988 percent from 1.995 percent.
Shorter-term one-week rates - most heavily influenced by excess liquidity, fell to 0.853 percent from 0.861 percent.
The benchmark London interbank borrowing rate (Libor) for euros also eased, falling half a basis point to 1.33429 percent. The equivalent dollar rate crept higher to 0.57575 percent, reflecting the continued difficulties facing European banks in securing dollar funding from the market.
Overnight rates fell to 0.509 percent from to 0.611 percent.
The recent intensification of the euro zone debt crisis has left a growing pack of banks virtually locked out of open funding markets and reliant on the ECB.
On Thursday, the European Systemic Risk Board said the dangers facing Europe's financial system had continued to worsen over the last three months, while the ECB itself this week warned of the dependence on its funding.
In response to the troubles the ECB has already reinstated some of its most potent crisis-fighting tools.
But banks still appear to distrust each other and prefer to deposit their money at the ECB's overnight facility than lend to each other. Latest figures show banks deposited 347 billion euros at the central bank. Emergency overnight borrowing also remained high at above 6 billion euros.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 1000 GMT.