Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".
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As Josh points out in his commentary below, the Euribor-OIS spread and the ECB liquidity deposit made new highs in the last week. This demonstrates that risk in the system has not abated in the slightest. Bank swaps were wider week-over-week and the SMP drastically reduced its secondary bond purchases w/w.
Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 3 bps to 96 bps versus last week’s print of 99 bps.
ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB. The ECB pays lower rates than the market, so an increase in this metric demonstrates increased perceived counterparty risk and liquidity hoarding.
European Financials CDS Monitor – Bank swaps were wider in Europe last week for 25 of the 40 reference entities. The median widening was 14.4%.
Security Market Program – The ECB's secondary sovereign bond purchasing program bought 635 Million EUR in the week ended 12/9 (versus 3.7 Billion EUR in the previous week) to take the total program to 207.5 Billion EUR.