Bloomberg News

Banks’ Reluctance to Lend to Each Other Holds Near One-Year Low

July 20, 2012

European banks’ reluctance to lend to one another held at the lowest in almost a year, according to a money market indicator.

The Euribor OIS spread, the difference between the euro interbank offered rate and overnight indexed swaps, was 35.5 basis points at 8:50 a.m. in London, from 35 yesterday, according to data compiled by Bloomberg. 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 was set at a record low 0.458 percent yesterday from 0.464 percent the day before.

The London interbank offered rate, or Libor, for three- month dollar loans was 0.453 percent yesterday from 0.455 the day before. Libor, which acts as a benchmark for about $360 trillion of financial instruments worldwide, is published by the British Bankers’ Association.

An estimate of euro average overnight borrowing costs over the next three months -- the Eonia OIS swap -- declined to 10.4 basis points from 10.9. Eonia was set at 12 basis points yesterday from 11.9 the day before, according to the EBF.

The cost for European banks to borrow in dollars increased from an 11-week low. The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 45 basis points below Euribor from as low as minus 43 basis points yesterday, the cheapest since May 7.

The one-year basis swap was little changed at 49 basis points below Euribor. A basis point is 0.01 percentage point.

Lenders cut overnight deposits at the ECB yesterday, placing 357 billion euros ($438 billion) with the Frankfurt- based central bank from 360 billion euros the day before.

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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