Euro banks scramble for funding

TWO unnamed banks tapped the ECB’s weekly dollar funding facility for the second time in a month yesterday in a fresh sign that Europe’s interbank markets are freezing up.

The escalating crisis has seen borrowing costs rise for banks, forcing weaker lenders to tap the emergency cash supply to the tune of $575m (£364.6m). That follows a one-time use of the facility by one bank in August, which borrowed $500m.

A bank would only draw on ECB funding if it were frozen out of the open market, where borrowing costs are much lower than the 1.1 per cent rate the Bank demands.

Moody’s yesterday downgraded two French banks, Credit Agricole and Société Générale, but they have denied any funding problems.

The average rate banks are charged for loans in sterling, euro and dollars is on the rise. The three-month dollar London interbank offered rate (Libor) increased from 0.347 per cent on Tuesday to 0.349 per cent yesterday, with Credit Suisse and Credit Agricole charged the most at 0.415 per cent.

Three-month euro rates also increased, from 1.4781 per cent to 1.4787 per cent and the equivalent sterling rate rose from 0.912 per cent to 0.915 per cent.

And IFR magazine has reported that US banks are stepping into the funding breach, signing deals to lend billions to European lenders over the summer.