TEXT-Fitch: U.S. money funds increase exposure to eurozone banks for fourth month

Fri Nov 30, 2012 6:04am EST

Nov 30 - U.S. prime money market funds (MMFs) increased their exposure to Eurozone banks, although the fund holdings still remain well below mid-2011 levels, according to Fitch Ratings.

As of end-October, MMF holdings of Eurozone banks were 13%, a 24% increase on a dollar basis since end-September 2012. French bank exposure also rose and represents 5% of MMF assets, the highest level since end-October 2011.

Fitch notes that MMF Eurozone bank exposure remains approximately 63% below end-May 2011 allocations, with French bank exposures more than 70% below current levels. Fitch believes several factors are likely to inhibit a full return to past allocations, including European banks' diminished desire for this form of short-term, potentially volatile wholesale funding. Furthermore, new Basel III liquidity rules will constrain banks' use of short-term funding.

Aggregate repo exposure rose 30% between end-September and end-October, and represents approximately 20% of total MMF assets.

The 15 largest exposures to individual banks collectively represent 43% of total MMF assets, with only two Eurozone institutions on the list, including Societe Generale, which enters the top 15 for the first time since end-July 2011. Australian, Canadian and Japanese banks continue to represent the majority of names within the top 15.

The full report 'U.S. Money Fund Exposure and European Banks: Eurozone Rise Continues' is available at 'www.fitchratings.com.'