Bank funding costs rise over European worries
(4 October 2011 – Australia) Pricing for the credit market for banks has moved sharply higher, effecting Australian bank funding costs, due to the European crisis.
Key measures of Australian bank funding costs havd shot up to the highest level since the global financial crisis, as European finance ministers began a new round of meetings last night and with an announcement on critical aid payment to Greece expected this week.
The rise in the credit-default swap spread also calls into question recent suggestions by the Reserve Bank of Australia (RBA) that credit market investors will differentiate Australia's relatively healthy banks from the problems in Europe.
The cost of insuring Commonwealth Bank of Australia bank bonds from default hit an all-time high of 224 basis points, nearly double the level of three months ago. This means the annual cost to insure $US10 million (A$10.4 million) worth of the senior bonds is $US200,000.
Other major banks, including ANZ and National Australia Bank, have experienced similar moves in credit-default swaps, with prices tracking above their peak in September 2008 when Lehman Brothers collapsed.
Investment bank Macquarie Group has seen its credit-default swaps move to 535.5 basis points, from a little more than 310 points just three months ago.
Pricing on credit-default swaps is widely viewed as a barometer for the cost of wholesale funding given it tracks investor expectations of bank bonds being repaid.
The rise in the credit-default swap spread also calls into question recent suggestions by the Reserve Bank of Australia (RBA) that credit market investors will differentiate Australia's relatively healthy banks from the problems in Europe.
The cost of insuring Commonwealth Bank of Australia bank bonds from default hit an all-time high of 224 basis points, nearly double the level of three months ago. This means the annual cost to insure $US10 million (A$10.4 million) worth of the senior bonds is $US200,000.
Other major banks, including ANZ and National Australia Bank, have experienced similar moves in credit-default swaps, with prices tracking above their peak in September 2008 when Lehman Brothers collapsed.
Investment bank Macquarie Group has seen its credit-default swaps move to 535.5 basis points, from a little more than 310 points just three months ago.
Pricing on credit-default swaps is widely viewed as a barometer for the cost of wholesale funding given it tracks investor expectations of bank bonds being repaid.
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