A dramatic imbalance between the funding patterns of US and European banks might be fuelling continued tensions in money markets, according to research by the Bank for International Settlements. European banks have secretly increased their dependence on dollar funding by about $500bn in the last four years to some $800bn by mid-2007 before the credit crisis. Much of the funds appear to have been borrowed from US banks which, by contrast, have been raising most of their US dollar funding from money market funds, which they have then lent on to other banks. This may help to explain why Libor – the benchmark rate for interbank money markets – has been so high in recent weeks
