Financiers across Europe used the majority of the money they took in loans from the European Central Bank (ECB) to purchase government bonds, it has emerged.
In December 2011 and last month, the central institution made a large number of three-year lending arrangements with interest rates of just one per cent available to financial companies.
These were designed to help banks boost their balance sheets and recycle more cash into the general economy and the business lending arena, but this has not happened as widely as was hoped, Reuters reports.
Despite the fact that more than €1 trillion was pumped into the continent's financial system through these ECB programmes - which were taken up by hundreds of lenders - much of this money was used to increase bond stocks rather than provide business loans.
In addition, governments have now signalled their intention to help the system by creating a stronger firewall, but ECB policymaker Jens Weidmann warned: "We must realize that all the money we put on the table will not buy us a lasting solution to the crisis."
By Claire Archer