"Worse Than Lehman" - European Bank Bloodbath Sparks Dollar Funding Crisis

For European banks, today is worse than Lehman with a 13%-plus collapse in the broad index. The major banks - like Credit Suisse and Deutsche Bank - have crashed over 15% to record lows as "Lehman moments" loom. This crisis prompted massive demand for USDollars, sending basis swaps (and other funding vehicles) spiking which it appears is why The Fed said it was ready to provide liquidity.

The broad EU banking system is collapsing...

 

Led by the majors...

 

Raising "Lehman moment" alarms again...

And sparking desperate demand for USDollars...

 

And Sterling was sold hard into the European close (down 200 pips)

 

As counterparty risk looms again...

Which explains why The Fed stepped up already with swap lines...

Earlier today we said that it was inevitable that the Fed would join the world's other central bankers in providing backstops to global markets, the only question is whether it would take place before or after the open. We now have the answer. Before.

The Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks, following the results of the U.K. referendum on membership in the European Union. The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy.

Because free, impartial, efficient, and unmanipulated markets.  Also we can finally stop holding our breath on those two Fed rate hikes which the FOMC anticipates in 2016.

And then Lagarde confrmed:

  • *LAGARDE REITERATES SUPPORT FOR C.BANK LIQUIDITY READINESS