Spotted in this IMF working paper — a bracing proposal for the race to choose one rate, among several out there, to replace discredited old Libor…
Choose all of them: Read more
In February, European banks lapped up €530bn of funding from the ECB, for a three-year term. In November, they’d taken €489bn. ECB president Mario Draghi called the operations an “unquestionable success”.* That’s nice.
But how can we objectively measure the success or failure of this unprecedented support by the central bank of so many diverse nations? Read more
Bank deposits at the European Central Bank have more than doubled to a five-month high and European institutions are paying more for dollars, signs of concern that turmoil in eurozone bond markets could spread, the FT reports. The ECB said that banks deposited €104.9bn overnight on Tuesday, the highest level since early February and up from €49.9bn on Friday. The central bank pays below market rates, implying the jump means that banks are hoarding funds rather than lending to each other. A number of short-term funding markets were unnerved last week by the US debt ceiling drama but analysts said the jump in deposits pointed to more than that. “The moves we’ve seen in the past three days suggest this is nervousness based in the euro markets, not elsewhere,” said Simon Smith, chief economist at FXPro. In a further sign of dislocation in short-term funding markets, the rates European banks must pay for dollars have jumped.
Regulators investigating alleged manipulation of the London interbank offered rate have turned their focus to yen rates set in London and the Tokyo interbank offered rate, the FT reports. UBS has confirmed the investigation’s widened scope by disclosing in its results that it had received “conditional leniency and conditional immunity” from the Department of Justice for turning over information on the setting of the two rates. Regulators are probing whether traders used derivatives to place bets on future yen and dollar rates and then colluded with bank treasury departments to move the rates in their direction, people familiar with the matter said.
That the European Central Bank has stepped in to replace much of the eurosystem liquidity that used to be provided by the banks’ themselves is well-known. Did you know, however, that one measure of the ECB’s liquidity provision is now higher than in the depths of the 2008 financial crisis? Read more
It’s gone all quiet in the other letters that make up a certain eurozone peripheral acronym…
Spain and Italy have both been contenders for the next eurozone hotspot, of varying degrees. And while Spanish and Italian banks have both been rushing to raise capital or prefund in recent months, to help stave off, or prepare for, peripheral contagion, they seem to have had varied success with their efforts. Read more
Here on FT Alphaville, we’ve often written about the increasing trend towards backing interbank trades with quality collateral.
So far it’s come across as an ad hoc response to post-crisis credit risks, and in Europe especially, the long-term fracturing of eurozone stability into various sovereign risks. Some strange curve pricing here, curious rates divergence there. Read more
European commercial banks have begun using their holdings of gold to raise cash with the Bank for International Settlements, in a further sign of strains in the money markets on which many rely for funding, reports the FT. The BIS took 346 tonnes of gold in exchange for foreign currency in “swap operations” in the financial year to March 31, according to a note in its latest annual report, the bank’s first mention of gold swaps in recent years.
Investor worries over eurozone banks resurfaced on Tuesday after a warning by a European Central Bank governing council member that some faced funding difficulties, the FT says. Sector shares were also hit by concern over a credit downgrade for BNP Paribas and a writedown by Crédit Agricole of the value of its Greek unit. See also FT Alphaville’s rundown of Crédit Agricole’s Emporiki.