Liquidity concerns could soon deepen again

The continued falls in commercial banks’ deposits at the ECB are in part a reflection of an improvement in conditions in the banking sector. But further falls could see liquidity falling to levels which have previously prompted inter-bank interest rates to start to rise. Meanwhile, there are few signs that banks in most of the peripheral economies have reduced their dependence on the ECB. If nothing else, then, the euro-zone banking sector remains worryingly fragmented.