Via Fitch Rating’s latest report on US prime money market funds’ European bank exposure, and as reported by the FT on Friday:
It’s worth picking out the shortening trend in term funding. As Fitch notes:
As of month-end August, roughly 28% of MMF exposure to French bank CDs [certificates of deposit] was in the shortest maturity bucket (seven days or fewer), a four-fold increase relative to month-end June. As of month-end June, more than half of all French bank CD exposure was in the longest term bucket (61 days or greater). By month-end August, roughly one-third remained in this bucket.
By contrast, the maturity of lending to UK banks hasn’t changed very much at all (if anything it’s slightly longer-term) even though the UK banks have also seen a withdrawal of money market fund lending albeit on a smaller scale than French banks.
Of course, in general there seems to be a trend towards liquidity at the expense of duration in MMF investments recently, such as in repo funding, while regulation has helped push money managers in this direction. There’s SEC rule 2a-7‘s reduction of allowed portfolio maturities, for instance. Point is though, none of this helps French bank reliance on short-term funding, even if there’s more than credit risk at work here.
Related link:
Un petit French funding problème – FT Alphaville