Bloomberg News

European Banks’ Dollar Funding Cost Falls to Lowest in 10 Weeks

January 09, 2012

Jan. 9 (Bloomberg) -- The cost for European banks to borrow in dollars declined to the lowest in almost 10 weeks, according to a money-market indicator.

The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was at 98 basis points below the euro interbank offered rate at 9:30 a.m. in London. That’s the lowest since Oct. 31 and compares with minus 101 on Jan. 6.

The one-year basis swap was at 88 basis points less than Euribor, compared with minus 87 on Jan. 6, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

A measure of banks’ reluctance to lend to one another in Europe was little changed. The Euribor-OIS spread, the difference between the borrowing benchmark and overnight index swaps, held at 94 basis points. It widened to 101 basis points on Dec. 1, 2011, the biggest gap since January 2009.

Lenders increased overnight deposits at the European Central Bank to an all-time high, placing 463.6 billion euros ($591.5 billion) with the Frankfurt-based ECB on Jan. 6. That exceeds the previous record of 455 billion euros set a day earlier.

Three-month Euribor, the rate banks say they pay for three- month loans in euros, fell for a thirteenth day, the longest declining streak since January 2010. The rate fell to 1.276 percent from 1.288 percent on Jan. 6. One-week Euribor declined for an eleventh day to 0.546 from 0.564 percent on Jan. 6.

--Editor: Michael Shanahan

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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