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06.05.2009

Banking Liquidity Risk - spreads narrowing in May

May seems to be kind to most banks (except for Bank of America). Spreads are narrowing and mainstream commentators seem to be calling the bottom of the market for banks. If spreads narrow further and credit sensitivity to unsecured lending eases, then Liquidity Risk scenarios will be requried to ensure that easier liquidity does not result in the structural illiquidity that preceded this crisis. Name crsis and systemic effects in the interbank markets will be scenarios the banks will have to use to ensure their liquidity resources are adequate when inevitable volatility in the interbank market re-surfaces.

 

What the commentators are saying

Reuters on the 6th May reported on the US Interbank market:

 "The U.S. two-year swap spread, seen as a key measure of
broader banking and financial market stress, narrowed to 51
basis points from around 58 basis points"

Bloomberg on the 6th May reported that BNP Paribas 
are forecasting further falls in spreads:

"The London interbank offered rate, or
Libor, for three-month loans in dollars may fall two basis
points today, according to Matteo Regesta, an interest-rate
strategist in London at BNP Paribas SA, France’s largest bank " 

The FT are also tracking this story:

"Three-month dollar Libor on Tuesday fixed at 0.98 per cent, 
three-month euro Libor fixed at 1.34 per cent and 
three-month sterling Libor fixed at 1.43 per cent."

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