Banks More Reluctant Lenders as Stresses Rise From Five-Year Low

Banks became more reluctant to lend to one another, with a gauge of stresses in European money markets signaling an increase from the lowest level since 2007.

The difference between the euro interbank offered rate and overnight index swaps, known as the Euribor-OIS spread, was 13.9 basis points, or 0.139 percentage point, at 8:45 a.m. in London, according to data compiled by Bloomberg. That’s from 12.8 basis points yesterday, which was the tightest since Aug. 8, 2007.

Three-month Euribor, the rate banks say they see each other lending at in euros, rose yesterday for the first time since June 28. The benchmark, derived from a daily survey of banks for the European Banking Federation, was set at 0.223 percent, up from a record-low 0.220 percent the day before.

The cost for European banks to borrow in dollars held near a three-week high. The three-month cross-currency basis swap was 27 basis points below Euribor, from minus 27.6 basis points yesterday, which was the most expensive since Sept. 5. The one- year basis swap was little changed at 27 basis points below Euribor, Bloomberg data show.

The European Banking Federation’s euro overnight index average, or Eonia, of unsecured lending deals was set at 0.095 percent yesterday from 0.107 percent on Sept. 28. The Eonia swap, an estimate of average overnight borrowing costs over the next three months, was little changed at 8.4 basis points.

Lenders cut overnight deposits at the European Central Bank yesterday, placing 295 billion euros ($380 billion) with the Frankfurt-based central bank from 316 billion euros the day before.

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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