Bloomberg News

Banks’ Reluctance to Lend to Each Other Holds at Three-Week Low

July 11, 2012

European banks’ reluctance to lend to one another held at the lowest in more than three weeks, according to a money market indicator.

The Euribor OIS spread, the difference between the euro interbank offered rate and overnight indexed swaps, was little changed at 39 basis points at 8:20 a.m. in London, according to data compiled by Bloomberg. The measure is the lowest since June 8 after it dropped nine basis points on July 5 when the European Central Bank cut its benchmark rates.

A decline signals banks are more willing to lend. Euribor is the rate banks say they see each other lending in euros and is derived from a survey by the European Banking Federation. Three-month Euribor fell to a record yesterday at 0.521 percent from 0.531 the day before.

The cost for European banks to borrow in dollars fell to the lowest since June 22. The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 54.5 basis points below the euro interbank offered rate from minus 57.5 basis points yesterday.

The one-year basis swap was 55 basis points below Euribor from minus 56 yesterday. A basis point is 0.01 percentage point. The Eonia OIS swap, an estimate of average overnight borrowing costs over the next three months, was little changed at 13 basis points.

Lenders increased overnight deposits at the ECB yesterday, placing 809 billion euros ($992 billion) with the Frankfurt- based central bank from 791 billion euros on July 9.

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

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


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