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European Bank Debt Dominates U.S. Money-Market Fund Assets

European banks dominated a list of top issuers to U.S. prime money-market funds, accounting for 44 percent of assets, according to a report by Fitch Ratings.

Rabobank Group, based in Utrecht, Netherlands, was the biggest issuer, selling 3.4 percent of the funds’ assets as of the end of February, followed by Paris-based BNP Paribas SA at 3.2 percent and Societe General SA at 2.4 percent, Fitch said. No U.S. banks were in the top 10.

"The concentration raises some concerns, but you’ll notice the money funds haven’t been in Ireland for well over a year or in Spain for months," said Peter Crane, president of money fund research firm Crane Data LLC in Westborough, Massachusetts. "By the time you read about a country in the headlines, the money funds are usually long gone."

Among European nations, funds had the highest concentration in debt from French banks at 12 percent, followed by U.K. banks at 8.6 percent, according to the Fitch report. Funds had no holdings in Ireland or Portugal at the end of February, while Spanish bank holdings fell to 0.2 percent from 0.5 percent in December.

Holdings Rise

Money-market fund holdings of European debt have risen from 38 percent of assets since the second half of 2006, Robert Grossman, head of Fitch’s macro credit research team in New York, said in an interview. The increase was driven by the banks’ demand for dollar-based holdings, a drop in the number of U.S. bank issuers because of the financial crisis and the decreased supply of U.S. asset-backed commercial paper, he said.

European bank assets in dollars rose to more than $8 trillion in 2008 from $2 trillion 1999, according to the Bank for International Settlements.

European banks’ reliance on U.S. money funds meant that they were among the largest users of a U.S. government program to provide emergency short-term funding to companies during the credit crisis. The U.S. subsidiaries of six European banks, led by Zurich-based UBS AG, were among the top 11 companies to tap the Commercial Paper Funding Facility, according to data made public by the Federal Reserve in December.

The program, opened in October 2008, was designed to help companies meet short-term funding needs when a run on prime money-market funds by investors forced the funds to stop buying commercial paper and other short-term debt.

The report examined the 10 largest U.S. prime money-market mutual funds, or those eligible to invest in corporate debt, which held a combined $736 billion. The funds accounted for 45 percent of assets in prime offerings.

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