It should come as no surprise that the short-term funding markets for European banks are getting increasingly problematic. Unfortunately for the ECB, which can intervene with a 6-12 hour time horizon to prop up the euro, there is nothing it can do to limit the bleed in Libor. Confirming this, Libor simply refuses to slow down its constant creep higher, causing increasing pain to all those who have sold the Ted spread and Libor-OIS, both of which are back to September 2009 levels.
Yet while a surging Libor in itself is a troubling phenomenon, what is even scarier is looking at the offers provided by constituent banks to the Britsh Bankers Association, which compiles the data and provides an ex-outlier quartile adjusted Libor rate. The dispersion between the top and bottom bank in today's EUR LIBOR panel was a whopping 33% today, begging the question of just how healthy the upside panel outliers are.
The first chart shows the absolute level in 3 month Libor as provided by each member bank.
And here is the same chart showing the dispersion around the average Libor of 0.6278%.
It is far too obvious that such a dramatic dispersion is certainly not healthy, and while we are very skeptical of UBS' indicated offer of 0.48% in 3M Libor (absent the company receiving a direct line of credit from a recently very intervention happy SNB), anyone who has dealings with Soc Gen, West LB, Mizuho and Rabobank may certainly want to hedge their counterparty risk. The banks indicated 3M EUR Libor offers are far above not just the average but are substantial outliers to historical respective offered rates. We will keep an eye out on these 4 firms as we anticipate material moves wider in the offered rates as liquidity conditions worsen.