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Global Liquidity Release Due To Major European Bank Nearly Failing Last Night?


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I thought that this massive coordinated operation was a bit suspicious.


I mean, why today?  ???


Forbes Magazine Article


Did a big European bank come close to failing last night?  European banks, especially French banks, rely heavily on funding in the wholesale money markets.  Given the actions of the world’s largest central banks last night, it raises the question of whether a major bank was having difficulty funding its immediate liquidity needs.


The Federal Reserve, the Bank of England, European Central Bank, the Bank of Japan, the Swiss National Bank, and the Bank of Canada in a coordinated action moved to provide liquidity to the global financial system.


In a separate move, the Chinese Central Bank cut bank reserve requirements.  The People’s Bank of China cut reserve–requirement ratio by 0.5%, the first cut in nearly three years.



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European banks are seizing up again...




Eurozone banks borrowed more than €8bn from the European Central Bank overnight on Thursday, the highest amount since March, in a sign of the deep strains in the financial markets.


Traders said the jump of overnight lending by the ECB highlighted the inability of virtually all eurozone banks, with the exception of the very strongest, to get funding from the markets.


One trader said: “Just look at my screen. It tells the story. I have one big European bank willing to lend and 40 banks wanting to borrow. And look at those names, they aren’t little regional banks. They are some the biggest banks in the eurozone and they can’t get funding in the marketplace. They have to go to the ECB.”




There are “early signs” of a credit crunch emerging in the euro area given the difficulties banks have in accessing funding, Bank of England Governor Mervyn King told lawmakers at a Parliamentary committee in London this week.


Banks are also being forced to compete for deposits, which were outstripped by loans to the tune of 22 billion euros in 2007, a gap that “blew out” to 289 billion euros in 2008, according to Oliver Wyman, a consulting unit of New York-based Marsh & McLennan Cos.


Customers are pulling money out of stressed countries’ banks. Greek lenders lost as much as 14 billion euros in the two months to the end of October, George Provopoulos, head of the Greek central bank, told lawmakers in Athens on Nov. 29. At UniCredit, Italy’s biggest lender, customer deposits at the end of September fell 3.5 percent to 392.5 billion euros from the end of June, the Milan-based bank said in its third-quarter statement, citing “the volatility of corporate customer deposits.”




The crisis has already prompted European banks to halt lending and start selling assets. But they are particularly keen to dispose of assets in U.S. dollars, where funding is most tight, seeing them pull back in areas like project finance, shipping finance, aviation and infrastructure.


For banks with big U.S. operations, or which tend to lend for projects denominated in dollars, like the French banks, this has been a particular problem.


Dollar funds have been made available via the ECB, but they are expensive and tapping the central bank carries stigma.


The funding crunch in Europe is far greater than simply a dollar issue, however, as banks in Europe's crisis hotspots such as Greece have found themselves shut out of the interbank market needed to fund their day-to-day operations.


Even getting access to backstop funding options, such as ECB funding facilities, is becoming a problem as banks fret about running out of eligible securities they can use to tap these, or collateral. Banks are busy hoarding what securities they can to cash in at the ECB.


"This is Lehmans, take two. Cubed," said Gaffney.

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