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More On That European Liquidity Crisis: A Sudden Surge In Dollar Funding Needs?

Tyler Durden's picture




 

The most amusing explanation we have read so far for the dramatic spike in punitive MLF borrowing over the past two days is that there has been a "fat finger" from a bank which indicated a too low allocation at the last term MRO. In other words, someone moved the decimal comma and now has to pay an additional 100 basis points of interest (annually) on €16 billion in borrowings. Citi's Jurgen Michels explains it best: "After the strong use of the ECB’s marginal lending facility yesterday by €15bn there is a further increase in the use of the facility to €16bn today. This suggests that some banks have not tapped enough liquidity in the ECB’s Main Refinancing Operation (MRO) on Tuesday, which was allotted on Wednesday. The MRO – which is still provided with full allotment – only had a modest use of €137 bn. Comment: Unless the ECB provides term-liquidity until the end of the running MRO (next Tuesday) we will continue to see a high use of the marginal lending facility." In other words: the ongoing surge in the MLF borrowings is now priced in. And to confirm just how clueless in reading market information CNBC is, the Comcast station looked at flat Euribor as an indication of market calmness. Unfortunately, as European banks have bypassed borrowing from each other (for about a year now) and go straight to the ECB either directly or via collateral pledges, as a lender of first and last resort, Euribor is about as useful as you know what on a nun. We present another stress indicator, which however is much more difficult to replicate: European Commercial Paper, denominated in dollars. And the surge there is unmistakable.

As the chart above shows, there have been several dramatic jumps in the US (top tier) ECP rate over the past week, and no sorry, these can not be attributed to HFT fat fingers or frontrunning (yet). Basically, it indicates there has been a substantial surge in the need for dollar funding. Are banks merely filling USD funding gaps through ultra-short term EUR borrowings, and proceeding to convert this capital to dollars in the open market? Keep an eye on the EURUSD for signs of weakness - if indeed banks are in dollar funding shortfall, it will likely manifest itself in the FX market.

 

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Fri, 02/18/2011 - 10:43 | 973894 TooBearish
TooBearish's picture

Not a problem - call Bennie he will print some fresh for you....BTFD

Fri, 02/18/2011 - 10:43 | 973898 cbaba
cbaba's picture

good catch

Fri, 02/18/2011 - 10:44 | 973899 SheepDog-One
SheepDog-One's picture

They just cant borrow fast enough to even keep up with payments on the interest, total insanity and mayhem. Why doesnt everyone just shoot the central bankster scum and we can get on with our lives?

Fri, 02/18/2011 - 10:52 | 973923 LawsofPhysics
LawsofPhysics's picture

Not enough people starving - yet.

Fri, 02/18/2011 - 10:45 | 973902 Ratscam
Ratscam's picture

so many MLF out there

Fri, 02/18/2011 - 10:53 | 973929 Sudden Debt
Sudden Debt's picture

YES, THERE ARE ENOUGH MILF'S RUNNING ARROUND FOR EVERYBODY!!!

FUCK E'M WHILE THEY'RE HOT!

Fri, 02/18/2011 - 10:45 | 973903 DonnieD
DonnieD's picture

Can't wait till MILF borrowing comes to the US

Fri, 02/18/2011 - 10:45 | 973905 EscapeKey
EscapeKey's picture

WTI up 4.4%.

Fri, 02/18/2011 - 11:07 | 973972 Snidley Whipsnae
Snidley Whipsnae's picture

Roll off in commercial hedgers over past few months is interesting...

http://finviz.com/futures_charts.ashx?t=CL&p=w1

Fri, 02/18/2011 - 10:50 | 973913 Oh regional Indian
Oh regional Indian's picture

Notice that spiking (look at that visual of the ECP) is becoming the norm.

Spikes all around. This is the kind of chart we need to get used to looking at.

Volatility is here and it's quite the roller-coaster from here on out....

ORI

http://aadivaahan.wordpress.com/2011/02/16/truth-about-america-truth-about-us/

 

Fri, 02/18/2011 - 10:51 | 973920 redpill
redpill's picture

Stop, everythings fine, it's just the snow/rain/China. Bartender, another round of QE, Euro style please. On second thought, make it a double.

Fri, 02/18/2011 - 10:57 | 973944 The Count
The Count's picture

Let's just stop the waiting game and get right to the inevitable downfall of western society.

Fri, 02/18/2011 - 11:00 | 973951 Caviar Emptor
Caviar Emptor's picture

Notice too the convergence of high-anxiety situations: Bahrain violence and food panic, Euro liquidity, oil.....can this end badly?

 

Fri, 02/18/2011 - 11:04 | 973962 Rogerwilco
Rogerwilco's picture

One of the most beautiful things I ever saw was a demonstration at an air show. An F-16 made a low level pass and then the pilot lit the afterburner and pulled straight up. His plane went vertical for thousands of feet in a clear blue sky, standing on nothing but the deafening roar of the engine at full thrust. It seemed like he could just climb forever...

Fri, 02/18/2011 - 11:17 | 974024 Snidley Whipsnae
Snidley Whipsnae's picture

F-16 = air breather. Anecdotal aside... I got a ride in an F8U Crusader 2 seat trainer. Pilot pulled the same thing...straight up...leveled upside down at about 32,000 ft. over the Cheasapeake Bay. Ever been next to an F8 on a flight line or carrier deck when they kick in the AB? More than audible...you feel it in the bones.

Fri, 02/18/2011 - 11:06 | 973971 steve from virginia
steve from virginia's picture

Story of the day so far.

Cash/dollar preference is ready to make a comeback: the failure of quantitative easing worldwide and a general revulsion of/for debt.

This is not going to be pretty, folks.

Dollar shorts are going to get annihilated ...

Fri, 02/18/2011 - 11:10 | 973986 Snidley Whipsnae
Snidley Whipsnae's picture

Yeah... all intelligent investors prefer fiat paper that is being printed at near light speed to other fiat paper that is being printed at near light speed. lol

Fri, 02/18/2011 - 11:28 | 974096 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Go to warp factor 9 Mr. Sulu!

Fri, 02/18/2011 - 11:27 | 974088 primefool
primefool's picture

Prior to 2008, govts and CBs actually worried about large scale insolvencies and such. The lesson of the last 2 years is - no need to worry - even the most gargantuan insolvent entities can be "fixed" - and ( snigger) - their publicly traded equity securities can be made to double. Public coffers are infinitely elastic. The so called "taxpayers" are really not part of the scheme.

In fact - the only reason they even bother with imposing taxes is to keep the riffraff in line and compliant. The only inflation the Fed cares about is Wage inflation - again dont want the riff raff to be getting more than 2% annual raises . If they ever do - the Fed's job is to brutally squash it.

That is the lesson.

Fri, 02/18/2011 - 14:57 | 975141 topcallingtroll
topcallingtroll's picture

How do you possibly keep up with all this shit?  I appreciate the efficient summaries, but you must have a secret TD team to help out. 

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