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 .
* Last week was interesting as rising confidence around an ECB-led bailout gave way to disappointment, only to be followed by an extraordinary rally on better than expected US econ data. All told, both Sovereign and company-specific default swaps were broadly tighter last week.
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Security Market Program – As of 2PM EST today the ECB had not updated its secondary sovereign bond purchasing program, the Securities Market Program (SMP), for the week ended 8/3, which it usually does by 10AM EST on Mondays. Excluding last week, the program had been dormant for twenty straight weeks. This lack of reporting could be a glitch, yet in any case its timing is interesting given ECB President Draghi’s remarks on the interest rate conference call last Thursday (8/2) in addressing rising yields in the periphery and saying that the ECB “may undertake” non-standard measures. We think it is highly likely that the ECB will reactivate the SMP in the coming weeks and may also re-engage the EFSF to buy bonds on the primary market. We’ll publish the data as soon as it becomes available.
European Financials CDS Monitor – Spanish, German, French, Italian and Greek banks tightened. Overall, 37 of the 39 European financial reference entities we track saw spreads tighten last week.
Euribor-OIS spread – The Euribor-OIS spread tightened by 6 bps to 29 bps. 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.
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.