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 .
* U.S. and EU bank swaps were wider last week as a spate of blue-chip U.S. companies disappointed on 3Q earnings and/or guidance. Meanwhile, Romney's momentum slowed and Fiscal Cliff concerns are again taking center stage. In Europe, French, Italian and Spanish bank swaps showed the most deterioration.
* Perennial laggards Spain, Italy and Portugal saw their swaps widen notably last week. However, the U.S., Japan, Germany and France all saw government default swaps tighten.
On OMTs Reporting: The ECB has stated that Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis and the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis. There is no indication that the OMTs has been initiated to date.
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European Financials CDS Monitor – Europe took its cues from America. European bank swaps were wider for 34 out of 37 reference entities WoW. Out of the three swaps that tightened this week, two were German (Deutsche Bank AG & IKB Deutsche Industriebank AG) and one was Belgian (Dexia S.A.). Spanish banks were sharply wider, where the average reference entity widened by 9.2%. This is the result of Moody's downgrading 5 Spanish regions on Monday of last week. Italian and French bank default swaps were also notably wider week-over-week.
Euribor-OIS spread – The Euribor-OIS spread tightened by less than a basis point to 10.4 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 – ECB Liquidity Facility balances ticked lower again this past week. 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.