Bloomberg News

ECB Borrows Most From Fed Dollar Swap Facility Since May 2010

October 21, 2011

Oct. 21 (Bloomberg) -- The amount the European Central Bank borrowed from the Federal Reserve’s dollar swap facility rose to $1.9 billion, the most in 17 months, as U.S. prime money market funds cut lending to the region’s banks.

The ECB took out an 84-day loan of $1.35 billion at an interest rate of 1.09 percent and rolled over an existing $500 million seven-day loan at 1.08 percent that it first took in September, the U.S. central bank said yesterday. The interest rates are about 67 basis points higher than the three-month dollar London interbank offered rate.

U.S. prime money market funds reduced lending to European banks by 14 percent on a dollar basis in September from August, cutting their exposure to French banks alone by 42 percent, according to a Fitch Ratings report yesterday. Lending levels are the lowest since the second half of 2006, when Fitch started recording the data, as the euro-region battles to contain the debt crisis.

“The ECB is doing weekly and monthly U.S. dollar operations to provide liquidity to European banks because U.S. money market funds are reducing their exposure to European banks,” said Alessandro Giansanti, a senior interest-rates strategist at ING Groep NV in Amsterdam.

The dollar swap facility is designed to increase liquidity in global money markets by ensuring that foreign central banks are able to deliver U.S. dollar funding to lenders in their regions.

Central Banks

The central banks of Canada, U.K., Japan and Switzerland, which also have access to the facility, have no loans currently outstanding. The ECB’s loan is the largest since May 2010, when it borrowed $6.4 billion from the facility.

In Europe, lenders increased overnight deposits at the ECB to the highest since Oct. 10. Banks parked 188 billion euros ($258 billion) at the Frankfurt-based ECB yesterday, up from 181 billion euros on Oct. 19. That compares with a year-to-date average of 61 billion euros.

A measure of banks’ reluctance to lend to one another in Europe rose for second day.

The Euribor-OIS spread, the difference between the borrowing benchmark and overnight index swaps, was 76 basis points as of 10:39 a.m. in London, from 75 yesterday. The rate reached 89 basis points on Sept. 23, the widest since March 2009.

Basis Swap

The cost for European banks to fund in dollars rose. The one-year basis swap, the rate banks pay to convert euro payments into dollars, was 69 basis points below the euro interbank offered rate, from 67 yesterday, according to data compiled by Bloomberg.

The three-month cross-currency basis swap widened to 93 basis points under Euribor from 91 yesterday. A basis point is 0.01 percentage point.

Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- rose to 1.585 percent from 1.584 percent yesterday. One-week Euribor was unchanged at 1.158 percent.

Three-month dollar Libor rose for the 31st day to 0.418 percent from 0.405 percent, according to the British Bankers’ Association. That’s the highest since Aug. 4, 2010.

The TED spread, or the difference between what lenders and the U.S. government pay to borrow for three months, held at 40 basis points.

--Editor: Michael Shanahan, Paul Armstrong

To contact the reporter on this story: David Goodman in London at

To contact the editors responsible for this story: Paul Armstrong at; Daniel Tilles at

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