ECB overnight deposits drop by more than half Deposits at the European Central Bank have more than halved after the common currency's guardian cut the rate it pays for overnight deposits to zero, but banks have elected to park them at a different part of the central bank rather than lend them out. Funds kept at the ECB's overnight deposit facility fell sharply on Wednesday night, from €808.5bn to €324.9bn, as the governing council's decision, taken last Thursday, to pay nothing on cash held in the account came into force. Until last night, the facility had paid out 0.25 per cent interest on deposits. However, the amount that eurozone lenders are holding at the ECB overall is little changed, with the drop in the funds parked in the overnight deposit facility almost equally matched by a rise in current account balances, from €73.9bn to €539.8bn. The current account is the main facility for lenders at the ECB through which most of their operations with the central bank are conducted. Previously lenders had transferred funds each night from their current account to the overnight deposit facility in order to take advantage of the interest paid on deposits. "After the cut in the deposit rate, there is now no difference between holding deposits overnight with the ECB or keeping the money in the current account: you get zero either way," Jens Larsen, chief European economist at RBC Capital Markets said. He added: "The real concern for the ECB is not whether banks keep money in one account or the other, but whether the cut in rates has any effect on credit creation and real economic activity." Josef Bonnici, governor of the Central Bank of Malta and a member of the governing council of the ECB, said the drop in deposits was "encouraging." "Especially the fact that the deposit rate was reduced to zero provides an incentive for the banking system to look what alternatives there are to improve their earnings," Bonnici told reporters at the sidelines of a central bank conference in Casablanca, according to Reuters. The amount held at the overnight deposit facility at the ECB has risen sharply over the course of the crisis as the central bank has pumped liquidity into the eurozone's banking system. The ECB's governing council cut its benchmark interest rates to their lowest level in the central bank's 14-year history last week. The main refinancing rate - the rate at which banks tend to borrow from the ECB - fell from 1 per cent to 0.75 per cent. The deposit rate fell by the same amount.