According to a report by the European Central Bank interbank funding in Eurozone dropped by a third, to just 22.5 per cent in April from 34.5 per cent before the beginning of the crisis in 2008.
Tony Stringer, a government debt analyst with ratings agency Fitch told Reuters, “we have seen the banks very much reverting to their domestic markets and not wanting to extend credit abroad…Interbank deposits have been reduced. Confidence in banks across the euro zone has been reduced. If banks continue to struggle, then they can't extend credit to the real economy.”
The percentage of interbank funding across Eurozone is now at the same levels as when euro was launched, 15 years ago. According to Reuters, cross-border interbank funding of German banks was down by 11.2 per cent year on year in March, equivalent to banks elsewhere in Europe withdrawing €29.5 billion from Europe’s biggest economy. Moreover, the fall in Euro zone banks’ stock of lending to their Greek peers was 68 per cent lower in April, compared with the same month in 2012. As a result approximately €18 billion withdrew from the Greek banking system.
According to ECB, the fall in cross-border interbank funding is not a sign of confidence problems. An ECB spokesman told Reuters, that the trend was due to a general shift towards secured lending and funding via retail deposits. The spokesman concluded that this was a sign that Eurozone’s banks were deleveraging, which increases the importance of stable retail deposits.
“Overall these facts suggest rather a stronger, more resilient banking system,” the spokesman said.
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