On top of all their other problems, European banks are finding it difficult to borrow, even from other banks, amid fears about Europe’s debt crisis.
“There is a lot of mistrust,” Christoph Rieger, co-head of fixed-income strategy at Commerzbank, told Bloomberg.
“Banks are trading with the ECB (European Central Bank) rather than with each other.”
The ECB is providing banks with emergency short-term funding. Spanish banks, for example, borrowed 85.6 billion euros ($105 billion) from the central bank in May.
The cost of insuring bank debt from default also recently rose to a near-record high.
“If you’re not a quality borrower, you’re not going to get funding from the market until you reduce your loan-to-deposit ratio and shrink your balance sheet,” Simon Maughan, an analyst at MF Global, told Bloomberg.
Of course, that could be a good thing: enforcing the discipline of the free market.
“The credit and bond markets are doing their job. Unless you reform, you’ll be stuck on government support for the foreseeable future,” Maughan said.
Investors are worried about the entire European banking system.
“There is systemic uncertainty hanging over the European banking sector because no one really knows which institutions are safe from the more adverse country risk scenarios and which are not,” Jamie Stuttard, head of European fixed income at Schroders, told the Financial Times.
“To some degree, the historically stronger institutions are suffering as much as the weaker ones.”
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