The European Central Bank's weekly dollar funding operation was not used today, calming fears that euro zone banks are being increasingly blacklisted by US money market funds in response to the region's debt crisis.
The ECB's weekly operation, which is usually well over-priced in comparison to open markets, was used for the first time since February last week, sparking concerns about euro zone bank access to money markets.
The health of euro zone banks, heavily exposed to the region's debt crisis has triggered a new wave of unease on financial markets.
The costs of insuring bank debt hit record highs this weak following a sharp drop in many banks' shares as the euro zone debt crisis has intensified.
The Markit iTraxx senior financials index, which covers 25 European banks and insurers and the cost of insuring their debt, widened slightly to 257 basis points this morning, close to the record wide level of 260 reached yesterday.
The ECB uses a swap line with the US Federal Reserve to provide euro zone banks with the dollars. In return banks post collateral as security.
It does not disclose how it sets the interest rate on the operations. However, traders say it tends to be around 1-month OIS dollar plus 100 basis points.
Reuters
