Central banks opening the floodgates are a sign of just how fragile lenders in Europe are after months of political dithering, and even new liquidity measures will not be enough to draw a line under banks' troubles.
Cheaper dollar liquidity provided by the world's central banks at a scale not seen since the height of the financial crisis was the type of decisive action that in itself could provide some relief, investors and analysts said.
The cost of existing swap lines will be lowered by 50 basis points from Dec. 5, the U.S. Federal Reserve, the ECB and the central banks of Canada, Britain, Japan and Switzerland said in a joint statement on Wednesday.
In practice, however, there are already worries it may not be wholly effective.
"I doubt that banks were not accessing existing facilities because they were 50 basis points more expensive," said Simon Adamson, an analyst at CreditSights.
Banks were wary of using the dollar lines such as the one provided by the European Central Bank — which has only been used rarely in recent months and for small amounts — because of the stigma attached to them.
"There will always be a witch hunt to see which bank is using it," Adamson said.
Further tools could be unveiled in the coming weeks, such as the widening of the range of collateral banks can use to access liquidity from central banks, industry sources said.
Lenders across Europe have been battered by worries over the health of governments and their debt piles, particularly hurting those with big holding of Greek, Italian and Spanish sovereign debt as worries over a euro zone break-up mount.
As well as domestic banks in those countries, this has included French banks, which in turn found themselves increasingly shunned by U.S. money market funds.
If the liquidity measures do not go to the heart of the problem, they are at least designed to make the path "slightly less rocky" for banks, Citi analyst Kinner Lakhani said.
Max Holzer, head of asset allocation at asset manager Union Investment, which is heavily invested in banks, said the money market problems had worsened lately, and that the intervention was a signal at the right time.
"This move by the central banks is a necessary, but not a sufficient element to solve the crisis. The market is waiting for a political solution," Holzer said.
If the fresh liquidity measures may go a short way to fixing dollar funding strains, it is less clear how they will have broader benefits for those without specific dollar problems, such as lenders in Spain.
Still, the hope is that this signals a willingness to flood banking systems with liquidity, which could start unjamming funding markets bit by bit.
Bank shares rallied across Europe after the news, and only five bank stocks were trading down. These were Greece's Alpha Bank, Portugal's BCP and Banco Espirito Santo, and Belgium's KBC and Dexia.
In Greece and Portugal, banks have been shut out of interbank markets for months, and wholesale markets have been impossible to navigate for almost all European lenders.
Spanish banks for example, who are not struggling with dollar needs but have been under pressure because of the Spanish sovereign's woes, have taken to selling bonds through their retail branches.
In Greece, banks reliant on the ECB for funding have started using a 30 billion euro ($40 billion) scheme of state guarantees set up earlier this year to issue bonds they can then use as collateral to raise funds.
"Financial markets are closed for all European banking entities and the only way to get liquidity is to try to have a cushion of extra guarantees to take to the ECB discount window," said a source at a Spanish bank.
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