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Saturday 3 December 2016

European banks turn to ECB for dollars as US lenders spooked

FINANCE

Published 15/09/2011 | 05:00

TWO European banks will borrow dollars from the European Central Bank today as lenders in the United States, spooked by the Greek crisis, grow wary of lending to their European counterparts.

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An ECB spokesman declined to comment on which banks will borrow the funds.

The ECB will lend $575m, which suggests the two banks were probably small, analysts said. But the amount could jump significantly in the near term if worries intensify that Greece may not get its next aid tranche. Talks on the next bailout payment are under way.

US money-market funds have reduced their exposure to the euro zone and the duration of their loans to euro lenders over recent weeks, but most banks can still access one-week dollars in interbank markets.

"At the moment it does not look like something structural, but it is something that we will have to watch going further," said Commerzbank interest-rate strategist Benjamin Schroeder.

"The problem is that... some are even speculating a Greek default (could happen) as early as September. It is not our central scenario, but there is a decent risk that this could become a more structural problem."

BNP Paribas's cost of borrowing in dollars has risen in the past four weeks amid concern US money-market funds are shutting off lending to France's banks because of their holdings of Greek government debt.

BNP Paribas said this week that it is able to finance its dollar needs at normal levels "directly and through foreign-exchange swaps".

The Paris-based bank said earlier this week it aims to boost its common equity tier 1 capital ratio to 9pc by the start of 2013, under Basel III rules, as it scales back US dollar corporate-and investment-banking.

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