Banking crisis continues to grow in EU

Banks fear the new wave of crisis

In brief: Tension in the money markets is growing - the banks are hiding in the shelter. The European banking system is bursting at the seams.

Due to the tense situation on the European money market banks have decided to protect themselves and have placed several hundred billion euros in deposits in the ECB. If this trend continues, it could push derail the already fragile economies of the euro area, embarked on the road to recovery.

On Thursday the Bank placed 305 billion euros at the ECB overnight deposits at 0.25%. This interest rate, below market. This will allow the banks at any time have access to funds. Thus, banks will not issue credits or other banks or businesses, and instead prefer to keep money in a safe and accessible place. The volume of overnight deposits close to record high. This indicates that the “ECB monetary infusions do not solve the problem of anxiety about the creditworthiness of market participants”, – says a senior economist at broker Tullett Prebon, Lena Komileva. – “The liquidity within the financial system is distributed inefficiently. When financial markets are working as it should, then the amount of funds placed by banks on overnight deposits, does not exceed several hundred million euro. The ECB and central banks of the European region have provided liquidity to banks amounting to 843 billion euro. “Perhaps we can say that the tensions in the money market moved in a different quality, because despite the massive amount of excess liquidity in the system, kindly provided by central banks, spreads continue to grow”, – says Christopher Rieger of the bank Commerzbank AG. A growing number of financial institutions are experiencing financial problems. “Group of problem banks increased, because they find it increasingly difficult to finance its own activities for a prolonged period”, – says Ms. Komileva. “For some banks, the door to the market was tightly locked,” – she adds. In connection with the stress in money markets European Interbank Offered Rate – rates Euribor, at which banks lend to each other – remain at a high level. On Friday, three-month base interest rate has strengthened to the maximum from the beginning of January mark of 0.699%. For comparison, the rate is at the end of March was 0.634%. Growth rates Euribor means that the cost of raising capital for banks will also increase. And it they can shift onto the shoulders of their corporate clients. Economists warn that this may delay the restoration of the European economy.

The volume of lending to the private sector in 2010 remains low. The volume of lending to nonfinancial corporations in March fell by 2.4% in annual terms. Given the above, Europe’s economy is showing only modest growth in the first three months of this year. The quarterly growth rate of 0,2%. Central banks to prevent a recurrence of the credit crisis, analysts say. Currency traders now expect the ECB and the Fed will unite their efforts to provide European banks dollar credits, which they are so necessary, especially in the long term. 10 May The ECB has already decided to renew the agreement with the Fed on the dollar swap lines for periods of 7 and 84 days.

Ukrainian Globalist
2010-05-31 22:49, Economics.

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