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Banks’ Dollar Funding Costs Rise to Three-Week High in Europe

Dec. 21 (Bloomberg) -- The cost for European banks to borrow in dollars rose to the highest in more than three weeks, according to a money-markets indicator.

The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 26.5 basis points below the euro interbank offered rate at 8:15 a.m., from minus 25 yesterday, according to data compiled by Bloomberg. The measure is the costliest since Nov. 28.

The one-year basis swap was 26 basis points below Euribor from minus 25 yesterday. A basis point is 0.01 percentage point.

A measure of European banks’ reluctance to make unsecured loans to one another rose to the highest in a week. The difference between Euribor and overnight index swaps, known as the Euribor-OIS spread, was 12.2 basis points from 12 yesterday.

The European Banking Federation’s euro overnight index average, or Eonia, of unsecured lending deals was set at 0.069 percent yesterday from 0.07 percent the day before. The Eonia swap, an estimate of average overnight borrowing costs over the next three months, was little changed at 6.1 basis points.

Lenders cut overnight deposits at the European Central Bank yesterday to 231 billion euros ($305 billion) from 233 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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