Growing nervousness over the eurozone debt crisis has clogged up financial markets, making it difficult for banks to raise funds, but pressure is expected to ease if the Greek parliament passes a vote to implement further austerity measures this week. Squeezed on all sides, eurozone banks have found their access to dollars via US money markets restricted and longer-term bond markets all but closed.
Italian banks - facing a potential ratings downgrade by Moody's - have found raising fresh capital sticky, and the IPO of Spanish savings bank Bankia, which has faced delays, will provide a further test. Moody's threat earlier this month to cut the credit rating of France's three top banks, citing their exposure to Greece, alarmed US money market funds, with traders saying lending to any European financial institution was being hit.
The one-year euro/dollar currency basis swap spread, which expands when banks become less willing to supply dollars to each other, has traded between 29 and 34 basis points since mid-June, compared with 22 bps earlier in the month. New issues in the senior financial institutions bond market have collapsed to a year-low with supply dropping to 4.3 billion euros, according to Thomson Reuters data, well below the 20-25 billion a month average seen in January to May.
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