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 .
* EU bank swaps tightened while the correspondent sovereign swaps widened. Among the strongest movers week over week were the Italian banks, dropping by an average of 14 bps. European banks, overall, were tighter across the board.
* Euribor-OIS widened nominally by 1 bp, while the TED spread widened by 2 bps.
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.
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.
European Financials CDS Monitor – The Italian, Spanish, French, German and British banks were all tighter last week, an interesting divergence relative to the sovereign swaps, which were generally wider. The largest moves were in Italy's banks, where swaps tightened by an average 14 bps. Overall 30 out of 37 European financial reference entities tightened last week (81%).
Euribor-OIS spread – The Euribor-OIS spread widened by 1 bp to 12 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 amount drawn under this facility continues to decline - a trend that's been in place since the middle of this year. 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.