The below excerpt speaks for itself. EU banks are scrambling for short term dollar denominated financing. G12 interest rates are compressing and this bodes well for U.S. equities and the dollar going forward.
By Paul J Davies in London and Michael Mackenzie in New York
Published: August 12 2008 23:19 | Last updated: August 12 2008 23:19
Central banks in the US and Europe saw heavy demand for their first
auctions of three-month dollar funds for banks on the two continents
as they continue to battle the strains in the interbank lending
European banks bid for almost four times the $10bn available in
Tuesday's debut three-month auction.
US banks put in orders for more than twice the $25bn available in
their market and Swiss banks asked for five times the $2bn available
The strength of demand meant that the rate that banks will pay to
borrow the funds through the central bank auctions was settled at only
a tiny fraction below the prevailing interbank lending rate, leading
to fears that Libor is actually too low.
The European Central Bank, Swiss National Bank and the US Federal
Reserve announced at the end of July that they would be rearranging
the Term Auction Facility (TAF) operations to make some of the funds
available for 84 days instead of just 28 days.
Analysts and bankers said the move was aimed at reducing the still
elevated level of US dollar Libor rates at three-month maturities
relative to one-month money and ease funding pressures around the end
of quarterly reporting periods.
European banks, many of which have large exposures to US dollar assets
mainly through structured finance holdings, have struggled to find
dollar funding from short-term money markets in the wake of the credit
crunch and do not have access to a dollar deposit base.