Euribor Rises to ECB Benchmark as Banks Signal Greater Willingness to Lend
By Keith Jenkins - Oct 18, 2010 11:50 AM GMT+0200 Mon Oct 18 09:50:24 GMT 2010
Euro-region interbank borrowing costs rose to the same level as the European Central Bank’s main
interest rate for the first time in 15 months, signaling greater willingness by financial institutions to lend to one another.
The euro interbank offered rate, or
Euribor, for three- month loans increased almost one basis point to 1 percent, the
highest level since July 10, 2009, data from the European Banking Federation showed today. The rate has risen from a low of 0.634 percent on March 31 as bank stress tests published on July 23 showed just 7 out of 91 banks in the region needed to raise more capital to withstand a new sovereign-debt crisis.
The increase in Euribor suggests more banks are weaning themselves off ECB liquidity programs that were started to fight the global recession and then extended as the Greek debt crisis fueled concern some nations in the region could default. Central bank Governing Council member
Axel Weber said Oct. 12 that policy makers should stop the bond-purchase program, and signaled it’s time to show how other measures will be withdrawn.
“There are certainly signs of normalization,” said
Christoph Rieger, head of interest-rate strategy at Commerzbank AG in Frankfurt. “Any bank that has access to market funding right now still wouldn’t go to the ECB at 1 percent. If you have access to unsecured Euribor cash at 0.74 percent, there’s no point.”
Signs that financial institutions are becoming less reliant on the central bank may be seen as “evidence of normalization,” ECB President
Jean-Claude Trichet said on Oct. 7 as policy makers left their main interest rate at a record low 1 percent. “The recovery should proceed at a moderate pace in the second half of the year,” he said in Frankfurt.
Funding Programs
To ease the fallout from the slump, the ECB lent banks as much cash as they needed at its benchmark rate for as long as 12 months. While policy makers have phased out this program, along with six-month loans, they still lend unlimited amounts at their weekly, monthly and three-month market operations. The central bank began buying government bonds as Europe’s deepening debt crisis started to threaten the survival of the 16-nation currency.
“Liquidity conditions in the euro system have improved, and we can still have higher rates,” said
Matteo Regesta, an interest-rate strategist at BNP Paribas SA in London. “It doesn’t make sense to say in normal times Euribor should trade below the ECB’s refinancing rate.”
Reduced ECB Reliance
Spanish, Greek and Portuguese banks reduced their reliance on ECB funding in September as concern over the sovereign debt crisis eased. Spanish lenders’ borrowings fell 11 percent from August to 97.7 billion euros, the Bank of Spain said Oct. 14 on its
website.
Greek banks took less from the ECB for a second month, using a total of 94.3 billion euros for refinancing operations, the Bank of Greece said. Portugal’s central bank said on Oct. 11 that its banks’ ECB financing fell 19 percent.
The rise in Euribor compares with a decline in the three- month dollar London interbank offered rate, or
Libor, as speculation mounts that the Federal Reserve may resume monetary easing policies, including another round of asset purchases known as quantitative easing, to bolster the recovery.
Three-month dollar Libor was at 0.289 percent on Oct. 15, according to data from the British Bankers’ Association. Libor has fallen from this year’s
high of 0.539 percent on June 17.
(Bloomberg)
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