Central Banks Flock To Fed In Sign No Confidence Remains In Commercial Banks

Foreign central banks have doubled the assets they keep with the Federal Reserve, in a sign that they may no longer have confidence in commercial banks.

This development sharply mirrors banks’ actions in late 2008, with the onset of the financial crisis.

“This shows a pervasive loss of confidence in the European banking system,” said Simon Ward of Henderson Global Investors, in The Telegraph. “Central banks are worried about the security of their deposits so they are placing the money with the Fed.”

The notable difference in this scenario is the funding swap line between the European Central Bank and the Fed, which has already been tapped once this summer.

According to another analyst cited by the Telegraph report, European banks have already been forced to borrow money for “a week at a time” instead of the 12-month borrowing period they typically enjoy.

Funding problems appear increasingly ominous across EU banks. According to the Bank for International Settlements, European banks will have to close a dollar funding gap of $1.8 trillion — a task that could be jeopardized if banks stop lending.

foreign official accounts absorbing fed funds

Photo: via the Telegraph

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