Euro zone banks are adapting to lower levels of extra cash in the financial system without the help of the European Central Bank, its president said on Thursday.
Banks are repaying the loans they took from the ECB during the euro zone crisis, draining extra cash out of the system they no longer need. This has pushed up interbank lending rates, but ECB President Mario Draghi said there was no reason for concern.
"The amount of liquidity in the Eonia market has increased quite significantly, which ... to some extent is a positive sign that banks are going back to trading on that market, and in a sense fragmentation ... is receding.
"In other words, banks rely less on the ECB and more on each other," Draghi told a news conference after the ECB decided to keep its interest rates unchanged at 0.25 percent.
The ECB has highlighted an "unwarranted tightening" in short-term money markets as one of the scenarios that could trigger policy action.
(Reporting by Eva Taylor; Editing by Catherine Evans)