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Takeaway: Bank swaps reflect Greek news.

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 Swaps: European bank and sovereign swaps tightened last week as Europe reached some consensus on a debt deal for Greece.

ESM - Moody’s downgrades ESM to Aa1 from Aaa (Friday after the close), saying the decision was driven by the recent downgrade of France to Aa1 from Aaa and the high correlation in credit risk which it believes is present among the entities' largest financial supporters.

ECB and OMT-  Over the weekend Spanish PM Rajoy said it may be “very complicated” to achieve 6.3% deficit to GDP target in 2012 given revenue problems and high financing costs. He reiterated that if an intervention request is in Spain's interest in the future, he would not have any doubts about turning to the ECB for help.

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.

Matthew Hedrick

Senior Analyst




European Financials CDS Monitor – European banks were generally tighter WoW with the exception of Greece, where bank swaps rose significantly. Overall, 32 of 37 financial reference entities in Europe were tighter last week on the heels of Monday's Greek debt announcement. 

European Banking Monitor: Swaps Tighter on Greece - ff. banks

Euribor-OIS spread – The Euribor-OIS spread widened by less than a basis point to 12.6 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: Swaps Tighter on Greece - ff. 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: Swaps Tighter on Greece - ff. facility