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The latest report from Capital Economics shows that the ECB’s easy monetary policy is not translating into improved credit conditions. The monetary base spiked after the ECB offered out the 3-year loans to the banking system.

Eurozone monetary base or "M0" (source: Capital Economics)

So far, however, this new liquidity is not being converted into any lending growth across the eurozone. This can be seen in the weakness of M3, the broad money stock indicator. But there are other signs of a difficult credit environment. Similar to what happened in the US, loan growth to eurozone citizens has been dropping. In particular, growth in credit card lending has fallen off significantly.

Loans to individuals/households (source: Capital Economics)

Another sign of tightening credit conditions is seen in the survey of bank credit officers in the eurozone banking system. It shows more stringent credit standards - recent and projected.

Lending survey of credit conditions (source: Capital Economics)

And just as was the case in the US, banks are hoarding cash and depositing it with the central banks, as can be seen in the updated chart of the ECB Deposit Facility.

ECB Deposit Facility (source: ECB)

Given that liquidity provided by the ECB is temporary (overnight to 3 years - unlike true QE), it may be holding the banking system back from taking risk. Sovereign debt is effectively "crowding out" private credit because banks still view it as a safer bet than industrial or consumer debt. And as long as they can make money on short term Italian government paper, why lend to an Italian household?

Source: Eurozone Citizens Not Benefitting From ECB's Easing