Tuesday, August 9, 2011

UH-OH: European Banks increasingly reluctant to lend to one another as in the credit crisis of 2008

BANKS in Europe appear increasingly reluctant to lend to one another, dangerously mirroring scenes last witnessed in the credit crisis of 2008.

So far the strains have been more pronounced in Europe rather than the dollar market, with EURIBOR interbank lending spreads over overnight index swaps having widened to post-financial crisis levels and more banks stashing funds with the European Central Bank (ECB).

... “Compared to what happened back in 2008, we are not at those very extreme levels but we have to watch the direction. The general advice to clients is to keep things tight and keep risk to the minimum for the time being,” Turner said.

Cash is not circulating in a regular fashion in the Eurozone as jitters about the debt crisis grow.

Banks deposited €145bn at the ECB overnight on Monday, a one-year high, figures showed yesterday.

Evidence of money market tensions has been widespread. Banks took a larger-than-expected €157bn in the ECB’s handout of seven-day funding yesterday.


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