While there are those financial publications who have realized that reliance on shadow markets for unsecured repo and otherwise lending may be troublesome in the short-, medium- and long-run, something we warned back in March 2010, a far more tangible threat is not what is happening in the already largely contracting shadow banking realm, but in real, non-shadow markets. Because for shadow to be impaired, these traditional liquidity conduits would have to be shut down first. Alas, while stocks resolutely continue to ignore anything but both good and bad headlines, all of which justify either QE3 or a surging economy (nothing new - as we have said this will occur most likely through the end of the year in a carbon copy of 2010), liquidity in non-shadow markets is the most impaired it has been in a long time, with 3M USD Libor rising again to 0.327% from 0.326%, although the story as usual lying below the headlines. As the charts below show not only are European banks seeing their LIBOR rates increasing (in as much as any of this is even remotely credible), with SocGen and Barclays the two most troubled banks from a self-reported liquidity standpoint, but also that the spread between the lowest and highest reported LIBOR is now the widest it has been in all of 2011. A few more days in which European funding markets completely ignore what is going on with US stocks (the same as US bonds incidentally), and the time to talk about shadow banking repo halts may indeed be nigh.
LIBOR by bank:
LIBOR min-max difference: