Latin American banks dominate the rankings for deposits with the central bank, providing large liquidity cushions in their countries if needed.

Top 10 central bank depositors, end-2010

Half of the 10 countries with the highest proportion of central bank deposits, according to The Banker's data, are in Latin America, suggesting very conservative liquidity management in the region.

Commercial banks’ deposits with the central bank are traditionally measured against customer deposits held by the commercial banks themselves. This gives an indication of how much surplus cash commercial banks have with which to meet the withdrawal of funding in the event of a liquidity squeeze.

Central bank deposits are often poorly remunerated, and where possible banks would prefer to hold other forms of cash-like assets, including government bonds. However, some of the markets where central bank deposits are highest, such as Jordan and Angola, do not have developed treasury markets. Some of these countries also represent banking markets at an early stage of development, where reliable lending opportunities are scarce, which would also encourage banks to hold large sums in the central bank.

The major Latin American economies such as Brazil and Peru, however, are more developed. But they are also tightly regulated, with high reserve requirement ratios (RRRs). This means that commercial banks are forced to hold deposits at the central bank equivalent to a certain proportion of their own deposit liabilities, which explains the substantial liquidity that banks in these countries are holding. In Peru, as of December 2010, banks were required to hold reserves at the central bank equivalent to as much as 25% of local currency deposits, and 55% of foreign currency deposits. In Brazil, RRRs are up to 43%.

At the other end of the scale, the Eurosystem requirements range from 0% for time deposits of more than two years, to 2% on overnight deposits – which was cut to 1% in January 2012. Western European countries, and especially those in the eurozone, dominate the list of lowest central bank deposit ratios. This is unsurprising, given the large range of liquid assets available in developed markets.

However, during 2011 many eurozone banks will have cut holdings of peripheral sovereign debt as ratings were downgraded. And bank deposits at the European Central Bank (ECB) started rising, as the most liquid banks preferred to park their funds at the ECB earning just 1%, rather than risk lending to other eurozone banks whose exposure to the periphery is uncertain. Consequently, the ratio of central bank deposits to customer deposits may show a significant increase when the 2011 data is available in the coming months.

Lowest 10 central bank depositors, end-2010


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