Financial Times
Editorial
October 3, 2011
Another day, another crisis of confidence in Europe’s banks. This time it is Dexia that has set alarm bells ringing, after Moody’s placed the Franco-Belgian banking group on review for a possible downgrade amid fears that the short-term funding on which it so heavily relies has dried up.
There is indeed every reason to be concerned about Dexia. The banking group is still in a delicate transition phase after its €6.4bn government bail-out in 2008. Though much has been done to bolster capital and reduce risk, it is disturbing to see that Dexia remains relatively highly exposed to peripheral sovereign debt compared with its bigger peers. No wonder money-market funds are reluctant to lend.
But the jitters over short-term financing are bigger than Dexia. Overnight deposits with the European Central Bank shot up last week – a clear signal that interbank lending may be drying up, not just for Dexia but for others also. French banks will be in the front line, as they rely more heavily on short-term funding than their European peers.
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