As expected, virtually everyone, or a total of 39 banks (compared to 2 the week prior), scrambled to receive dollars from the ECB following the cut in the USD swap line rate from OIS + 100 to OIS + 50. Specifically, $50.7 billion in 84 day swaps (34 banks asking for dollars at a new and reduced rate of 0.59%) and $1.6 billion in 7 day swaps (5 banks at 0.58%) was just opened for a total of $52.3 billion. The expectation had been that just about $10 billion would be demanded, indicating how close to the cliff Europe’s banks had been.
Needless to say, all these are stopgap liquidity measure to fix what is increasingly a pan European (in)solvency crisis, and thus will achieve nothing in the long run. And what is worse is that the non-USD liquidity indicators have once again hit an inflection point and turned negative: 3-mo Euribor/OIS spread rose to 1.002 vs 0.999 yesterday, near last wk’s high of 1.006 which was most stressed since March 2009. In other words, as we have been saying, the funding squeeze has now managed to shift away from USDs and is impacting the EUR market itself, something the Fed has no control over.