But that’s just one part of the funding story. Another concerns our old friends, the money market funds. Fitch Ratings on Monday published its latest monthly report on US MMF exposure to European banks.
It’s not a cause for panic but it does show how MMFs have reduced their overall exposure and, more interestingly, shifted to shorter-term lending. There were reports a few weeks back of MMFs being reluctant to provide longer-term funding so it’s nice to have some corresponding data. Here’s the relevant chart from the report:
Overall, the MMFs sampled by Fitch (it uses data from the 10 biggest MMFs, representing 43 per cent of total prime MMF assets) reduced their exposure to European banks last month by 9 per cent on a dollar basis.
What of French banks, we hear you ask. Fitch notes that by the end of the month over 20 per cent of MMF exposure was in maturities less than a week long, a three-fold increase since the end of June.
A little worrying but that caution is nothing compared to MMFs’ view of Italian and Spanish banks. From the report:
Finally, exposures to Italian and Spanish banks, which in aggregate were 0.8% in month-end June, currently round to 0% (see the “Diverging Exposures Across Countries” chart).
Not exactly a vote of confidence.