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Fed Extends Currency Swap Lines Over Eurobank Dollar Funding Concerns

The party line is everything is fine in bank land….even Eurobank land. But some recent developments suggest otherwise. The business news on Europe has pretty much daily updates on the unfolding and linked sovereign debt/ bank solvency crisis. The officialdom insists this looming problem can be resolved but most observers think it can’t be in the absence of a fiscal union, which is a political bridge too far right now. In a not-widely-noticed replay of pre-crisis conditions, the cost of swapping euros into dollars to the same high level observed last May, when sovereign crisis fears were at a peak. This is of concern because European banks have a dollar funding gap, meaning they will come under liquidity stress if they cannot roll dollar funding. And the friendly ECB cannot solve this problem unassisted; the ECB can only provide Euro funding.

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