Debt: Money Markets Hit Concerns While Banks Are Reluctant



ECB Concerned

ECB Concerned

Last week, money markets had higher strains with concerns of a potential Greek default combined with trouble at Franco-Belgian bank Dexia. The financial area of the eurozone was deemed to be in trouble, with the worries about money markets taking over the hopes of the austerity plans proposed by the European Central Bank.

Missed Targets

Greece said that the deficit target set months ago would be missed due to the economic climate, with the tough steps not enough to avoid bankruptcy for the country, which could hurt the euro further and become a larger crisis for the eurozone.

Ratings agency Moody’s reviewed ratings on Dexia, with shares falling by as much as 10% due to its exposure to the struggling economy in Greece. The bank has one of the largest exposures out of the overseas lenders to the company. The ratings agency stated that it was worried about the Franco-Belgian bank’s access to funds in light of the exposure.

In addition, the Federal Reserve Bank of New York is speculated to ask for extra details on liquidity due to the struggle of the US to steer clear of risks involving the eurozone crisis. This is in light of the dollar/euro swap plan, or cross-currency, which is at its worst since December 2008.

Lending Between Banks?

The European Central Bank (ECB) saw interbank rates increasing around the eurozone, though it has proposed adding money into the system. “Apart from last week’s liquidation of some positions into quarter-end because people needed cash, we still have a fair amount of risks priced in. I don’t see any significant improvement in markets,” according to an expert from BNP Paribas.

Banks have become more reluctant to lend to one another and have meant most buy up ECB euro funding. Prior to this news, banks across the continent took in 208 billion euros in one-week funds. This was the highest amount since early February and meant an extra 140 billion euros in over all three-month funding. The ECB has gone back into crisis mode, with the six-month euro funding reintroduced and limit-free funding extended through to the middle of January. In addition, it is anticipated to 12-month loan tenders and purchase covered bonds.

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