Dr. Lorenz Weimann
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Two worries are engulfing European banks: Interbank lending is starting to freeze up again Investors are shunning banks Indicators of the potential for another interbank lending freeze are many: growing use of the ECB’s overnight deposit facility, higher borrowing from the ECB by peripheral banks, less buying of European banks’ commercial paper by US money market funds and, last but not least, a rising Euribor-OIS spread. That investors are turning away from banks is reflected in falling stock prices, rising interest rates and CDS spreads, and falling debt issuance. The fear is that these funding constraints could spark another credit crunch – with a devastating impact on the rest of the economy, similar to the situation after Lehman’s collapse.