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Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

Key Takeaways:


* There was little movement again this week in several key indicators. Euribor-OIS continued to trend downwards, falling 4 bps over last week. Over the same period, the TED spread remained flat. Both of these series have largely renormalized.

 

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 4 bps to 49 bps.

 European Banking Monitor - aa. euribor

ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  Banks deposited €758.8 billion in the latest reading.

European Banking Monitor - aa. ecb facility

European Financials CDS Monitor – Bank swaps were tighter in Europe last week for 36 of the 40 reference entities. The average tightening was 3.9% and the median tightening was 5.9%.

European Banking Monitor - aa. banks

Security Market Program – The ECB's secondary sovereign bond purchasing program purchased no sovereign paper in the week ended 3/16 versus €27 Million in the week ended 3/9. February-to-date the Bank has purchased a mere €210 Million versus €2.2 BILLION in the week ended 1/20 and €3.8 BILLION in the week 1/12. When questioned on the lack of buying over recent weeks, ECB President Draghi has only answered that the SMP is a non-standard measure that is “neither eternal nor infinite.” Clearly, with the some €1 Trillion injection of liquidity across the LTROs, the Bank is paring back buying and watching the results of sovereign bond auctions.

European Banking Monitor - aa. SMP

Matthew Hedrick

Senior Analyst