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And Now Europe's Banks Are Starting To Panic As The Oxygen Gets Sucked Out Of The Room

European banks are scrambling to engineer new sources of funding as traditional ones dry up, David Enrich of the Wall Street Journal reports.

For example, the banks are now entering into "liquidity swaps" with one another, whereby they exchange illiquid assets that can't be used for collateral for assets that can.

And in so doing, they're tying Europe's financial system even tighter together at the very moment that the crisis seems to be coming to a head.

Specifically, traditional sources of bank funding in Europe, such as institutional investors and other banks, are getting cautious as fears grow about the need for sovereign debt restructurings. As liquidity dries up, the only reliable source of funding is often the ECB.

But the ECB only accepts certain types of assets as collateral for loans, and some banks are running out of those assets.


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