The European Central Bank said financial institutions’ overnight deposits with it rose to a record after it awarded them three-year loans.

Euro-area banks parked 411.8 billion euros ($538.4 billion) with the Frankfurt-based ECB Monday, the most recorded since the euro’s introduction in 1999 and up from 346.9 billion euros a day earlier. The previous record was 384.3 billion euros on June 11, 2010.

The ECB last week lent 523 banks a record 489 billion euros for three years in its latest attempt to keep credit flowing to the 17-nation euro economy during the sovereign debt crisis. It lent the money at its benchmark rate of 1 percent. Banks are depositing excess cash back with the ECB at the overnight rate of 0.25 percent, incurring a loss rather than lending it at a better rate elsewhere.

“It is way too early to declare the ECB loans a success or failure,” said Aline Schuiling, a senior economist at ABN Amro NV in Amsterdam. “It’s the end of the year, markets are very quiet and a lot of institutions are still closed. Never draw any fundamental conclusions in the final week of the year.”

The jump in overnight deposits was “to be expected, as there is simply more money sloshing around the system,” said Christoph Rieger, head of interest rate strategy at Commerzbank AG in Frankfurt.

Nobel-prize winning economist Robert Mundell said in a Bloomberg Television interview broadcast Tuesday that the ECB’s three-year loans are a “blockbuster event” that will “avert, at least for the time being, any kind of banking crisis.”

Unlike its counterparts in the U.S. and the U.K., the ECB has resisted calls to step up government bond purchases to fight the debt crisis, opting instead to grease the banking system with unlimited liquidity in the hope financial institutions will lend the money on to companies and households. 

(Bloomberg)