The hefty amount of cash floating around in the euro banking system is generally offsetting fears that a potential messy Greek default could severely hit lenders across the bloc, but tentative signs of stress in the interbank lending market are emerging.
Worries that Greece may not get a second bailout are making banks more reluctant to lend to each other again, with traders saying bank-to-bank lending has turned even more "name specific" in recent days, meaning only the strongest banks were active. Benchmark interbank rates continued to fall, with the European Central Bank's injection of nearly half-a-trillion euros into the banking system last year providing comfort. Banks can also take as much of the extra cheap loans as they want at a similar tender at the end of the month. But some signs of stress can still be spotted.
Interbank rates maintained their downward trend. The three-month London Interbank Offered Rate for euros, or Libor, dropped to 0.96821 percent on Thursday versus 0.97821 percent on Wednesday. Equivalent Euribor rates also fell
The Markit iTraxx index of credit default spreads for European senior financials - measuring the cost of insuring against a bank defaulting on its debts - has risen by almost 50 basis points in the past 10 days to above 240 bps. But it was still more than one full point below the highs seen in November before the ECB first announced its three-year funding plans. "The chance of a liquidity squeeze has been (lowered) but you cannot fully neglect the chance of default from a bank which has exposure to a peripheral country, not only to Greece," said Benjamin Schroeder, rate strategist at Commerzbank.
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