Bloomberg News

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

August 21, 2012

European banks’ reluctance to lend to one another held at the lowest level in more than 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 little changed at 24.9 basis points at 10:44 a.m. in London, according to data compiled by Bloomberg. The measure is the lowest since July 8, 2011.

Three-month Euribor, the rate banks say they see each other lending in euros, was set at a record low 0.318 percent from 0.325 yesterday. The benchmark, derived from a daily survey of banks for the European Banking Federation, fell for the twelfth day.

The cost for banks to convert euro interest payments into dollars dropped to the lowest since July 22, 2011. The three- month cross-currency basis swap was 32.5 basis points below Euribor from minus 35 yesterday.

The one-year basis swap was little changed at 38 basis points less than Euribor. A basis point is 0.01 percentage point.

An estimate of future average overnight borrowing costs in euros, the three-month Eonia swap, was 7 basis points from 7.5 yesterday. The EBF’s euro overnight indexed average, or Eonia, of unsecured lending deals was set at 0.109 percent yesterday from 0.112 percent on Aug. 17.

Lenders increased overnight deposits at the Frankfurt-based European Central Bank yesterday, placing 333 billion euros ($412 billion) with the bank from 327 billion euros on Aug. 17.

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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