Europe funding strains ease

Financial Times
January 10, 2012

Strains in the eurozone funding markets eased on Tuesday as emergency lending by the European Central Bank continued to buoy sentiment.

Benchmark short-term eurozone bank lending rates fell for the 14th day in a row, the cost for European banks to fund in dollars eased and the amount banks borrowed from the central bank fell, in a sign of improving confidence.

The ECB provided €489bn in three-year loans to eurozone banks last month, averting a potential credit crunch and reassuring investors that banks will be able to fund themselves in the coming months.

“In the near term, some of the concerns have been assuaged by the ECB move,” said James Longsdon, co-head of Emea financial institutions at Fitch Ratings, at a conference in London. But he said the bigger concern was whether banks would manage “to wean themselves off” such funding in the future.

“Tensions have certainly been reduced by the ECB’s actions,” said a trader at a European bank. “But how long will it last?”

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