Here is the first of what I hope to be a series of posts on these central bank liquidity operations. For the last forteen months, central banks have tried to revive the interbank market. So far, every measure has failed, with interbank spreads now at an all time high. For all practical purposes, banks have stopped lending to each other.
Where are commercial banks keeping their money? If they are not lending their spare cash to each other, then where are they parking the money? According to the latest Bank of England balance sheet, a fair chunk of it is sitting in Threadneedle street. Reserve balances at the bank are at an all time high.