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 .
European Financial CDS - Full disclosure, EU bank swap quotes are becoming more and more sporadic. We pull our data from Bloomberg and recently have been receiving a lot of "NA" data points on numerous EU banks. When we asked Bloomberg what was going on, they explained that they source quotes from multiple market makers and if they can't find at least two separate quotes for a security they don't publish. We think that it's a referendum of sorts on the declining risk profile of the EU banking system as a whole, that interest in insuring against default at many of Europe's larger banks has now slowed to a trickle. Overally, EU banks were little changed on the week, tightening by a median of 1 bp.
Sovereign CDS – Sovereign swaps tightened across the board last week. Portuguese sovereign swaps tightened by -10.4% (-58 bps to 498 bps) after rising last week by 83 bps. Nevertheless, they remain 89 bps higher than levels one month ago. It's also worth flagging the U.S. U.S. default swaps are now at 24 bps, this is down 3 bps WoW and 6 bps MoM. For reference, U.S. default swaps touched their recent multi-year lows on 9/30/09 at 19 bps and their recent multi-year highs of 64 bps on 7/29/11. Within that reference frame (19-64 bps), we are only 5 bps away from the low, or roughly in the bottom decile of the trading range of the last several years.
Euribor-OIS Spread – The Euribor-OIS spread tightened by 1 bps to 11 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 – Deposits fell almost 12 billion Euros last 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.