By Sarah White
LONDON, Nov 30 (Reuters) - Central banks opening the
floodgates are a sign of just how fragile lenders in Europe are
after months of political dithering, and even new liquidity
measures will not be enough to draw a line under banks'
Cheaper dollar liquidity provided by the world's central
banks at a scale not seen since the height of the financial
crisis was the type of decisive action that in itself could
provide some relief, investors and analysts said.
The cost of existing swap lines will be lowered by 50 basis
points from Dec. 5, the U.S. Federal Reserve, the ECB and the
central banks of Canada, Britain, Japan and Switzerland said in
a joint statement on Wednesday.
In practice, however, there are already worries it may not
be wholly effective.
"I doubt that banks were not accessing existing facilities
because they were 50 basis points more expensive," said Simon
Adamson, an analyst at CreditSights.
Banks were wary of using the dollar lines such as the one
provided by the European Central Bank -- which has only been
used rarely in recent months and for small amounts -- because of
the stigma attached to them.
"There will always be a witch hunt to see which bank is
using it," Adamson said.
Further tools could be unveiled in the coming weeks, such as
the widening of the range of collateral banks can use to access
liquidity from central banks, industry sources said.
Lenders across Europe have been battered by worries over the
health of governments and their debt piles, particularly hurting
those with big holding of Greek, Italian and Spanish sovereign
debt as worries over a euro zone break-up mount.
As well as domestic banks in those countries, this has
included French banks, which in turn found themselves
increasingly shunned by U.S. money market funds.
If the liquidity measures do not go to the heart of the
problem, they are at least designed to make the path "slightly
less rocky" for banks, Citi analyst Kinner Lakhani said.
Max Holzer, head of asset allocation at asset manager Union
Investment, which is heavily invested in banks, said the money
market problems had worsened lately, and that the intervention
was a signal at the right time.
"This move by the central banks is a necessary, but not a
sufficient element to solve the crisis. The market is waiting
for a political solution," Holzer said.
If the fresh liquidity measures may go a short way to fixing
dollar funding strains, it is less clear how they will have
broader benefits for those without specific dollar problems,
such as lenders in Spain.
Still, the hope is that this signals a willingness to flood
banking systems with liquidity, which could start unjamming
funding markets bit by bit.
Bank shares rallied across Europe after the news, and only
five bank stocks were trading down. These were Greece's Alpha
Bank, Portugal's BCP and Banco Espirito Santo
, and Belgium's KBC and Dexia.
In Greece and Portugal, banks have been shut out of
interbank markets for months, and wholesale markets have been
impossible to navigate for almost all European lenders.
Spanish banks for example, who are not struggling with
dollar needs but have been under pressure because of the Spanish
sovereign's woes, have taken to selling bonds through their
In Greece, banks reliant on the ECB for funding have started
using a 30 billion euro ($40 billion) scheme of state guarantees
set up earlier this year to issue bonds they can then use as
collateral to raise funds.
"Financial markets are closed for all European banking
entities and the only way to get liquidity is to try to have a
cushion of extra guarantees to take to the ECB discount window,"
said a source at a Spanish bank.
($1 = 0.743 Euros)
(Additional reporting by Douwe Miedema in London, Kathrin Jones
in Frankfurt, Jesus Aguado and Sonya Dowsett and Carlos Ruano in
Madrid and George Georgiopoulos in Athens; Editing by Jon
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