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Takeaway: The election, fiscal cliff and renewed EU concerns triggered sharp selloffs in Financials. Credit markets were dragged lower as well.

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:

 * U.S and EU bank swaps were wider last week, on the heels of the American presidential elections, mounting fears about the looming fiscal cliff in the United States, and renewed concerns regarding Greek austerity. In the United States the money center banks and the large brokers saw that most widening. In Europe, bank swaps were wider, led by Italy, Spain, and France.

 * 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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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

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European Financials CDS Monitor – European financials followed Euro sovereigns, widening wee-over-week. Swiss banks were wider by 6 bps, while Spanish and Italian banks widened by 10-32 bps. French banks widened noticeably, while German banks widened slightly.

European Banking Monitor: THE ELECTION, THE CLIFF AND THE AUSTERITY - aa. banks

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.

European Banking Monitor: THE ELECTION, THE CLIFF AND THE AUSTERITY - aa. euribor

ECB Liquidity Recourse to the Deposit Facility – No change in the trajectory here - overnight deposits continue to shrink. 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: THE ELECTION, THE CLIFF AND THE AUSTERITY - aa. facility