The Cost Of Insuring European Bank Debt Has Doubled Since April

Photo: Danske Bank via Pragmatic Capitalism

The cost of insuring junior and senior bonds at 25 European banks has doubled since April, according to a Bloomberg report.Such numbers appear to confirm fears that funding problems are threatening to cripple European banks.

The report also cited the highest Euribor-OIS spread since 2009 as indicative of banks’ reluctance to lend to one another.

“The banks seem to prefer to deposit cash with the ECB rather than lend it out to others that need it,” John Raymond, an analyst at CreditSights, Inc., in London told reporters. “In itself, that’s a sign of stress in the interbank market.”

A retreat in the availability of bank funding could further slow growth in Europe, particularly in the south where bank problems are most severe. Poor economic conditions could aggravate the already unsteady political positions of governments in the PIIGS and erase hopes that austerity measures will fix their sovereign debt problems.

The graph to the right shows CDS rates since January 2007.

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