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Takeaway: Sovereign yields come in but remain elevated as Draghi elects not to reactivate the SMP last week.

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:

* European financials acted a lot like European sovereigns, both tightening week-over-week. The Draghi rally continues for now. As the SMP chart below shows, Draghi elected for yet another week to refrain from buying sovereign peripheral paper. We expect this to change in the coming weeks.


If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.

Matthew Hedrick

Senior Analyst




Security Market Program – For the 22nd straight week the ECB's secondary sovereign bond purchasing program, the Securities Market Program (SMP), purchased no sovereign paper for the latest week ended 8/10, to take the total program to €211.5 Billion.

Following President Draghi’s conference call remarks on 8/2 in which he addressed rising yields in the periphery and said that the ECB “may undertake” non-standard  measures, we continue to expect that the ECB will reactivate the SMP to buy Spanish and Italian bonds, in particular, in the coming weeks.

European Banking Monitor: SMP Remains on Hold - aaa. SMP


European Financials CDS Monitor French and Italian banks tightened, alongside the sovereigns. Spanish banks were mixed, with a few of them posting sizable widening. Overall, however, swaps throughout Europe's financial system were notably tighter. 

European Banking Monitor: SMP Remains on Hold - aaa. Banks

Euribor-OIS spread – The Euribor-OIS spread tightened by 3 bps to 28 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.

European Banking Monitor: SMP Remains on Hold - aaa. 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.  

European Banking Monitor: SMP Remains on Hold - aaa. ECB facility