A fortnight is a long time in short-term credit markets.
Reports of US money market funds pulling out of European banks in July abounded last month – and French banks appear to be particularly vulnerable due to their relatively high reliance on short-term funds and lower deposit ratios. Well, the trend continued in August, the FT reports:
Some money market funds, historically essential providers of short-term financing to European banks, have begun to avoid French institutions entirely, while other money market fund managers say they are “de-emphasising” the country’s banks.
Adding a sting in the news is that money market funds have been attracting more investments since the US debt ceiling crisis was ‘resolved’ — but those investors apparently don’t want exposure to European banks:
Driving the funds’ behaviour is the fear of a run from nervous investors, who can withdraw money without notice.
“Our money market team has significantly diminished its exposure to eurozone banks recently because of headline risk, not because of credit issues,” said Legg Mason, which has ceased money market lending to the French banks.
SocGen in its quarterly earnings presentation last week showed how much its short-term funding from US money markets fell in the first half of August:
SocGen said it proactively managed its liquidity thus:
• Proactive management of the August pullbackof US Money Market funds
-Decrease of long position with the FED
-Use of EUR/USD swaps in interbank market
-Reduction of market activities needs
• EUR funding remained abundant at all times and was increased in August
• More structural actions can be implemented ifUSD funding durably lower, with manageable P&L impact
Still, one wonders what the next fortnight looked like.