FRANKFURT Feb 18 Euro zone banks shying away
from unsecured lending could create bottlenecks for banks
looking to refinance as well as making such financing more
expensive, German central bank board member Andreas Dombret said
Since the financial crisis started six years ago, banks have
trusted each other less and moved towards requiring collateral
in order to lend to each other.
Dombret, who is in charge of financial stability at the
Bundesbank, said that demanding collateral for lending could
lead to an increasing amount of assets on banks' balance sheets
getting tied up, which tended to increase expected losses for
unsecured investors should a bank fail.
"Consequently, unsecured investors are inclined to demand
compensation for their more junior position in the debt
hierarchy - in effect driving a bigger wedge between secured and
unsecured funding costs," Dombret said in the text of a speech
to be given in Tokyo.
"As a result, some banks may find it more challenging to
meet their overall refinancing needs."
The European Central Bank's Euro Money Market survey showed
in November that the unsecured cash borrowing of large euro zone
banks represented in the survey decreased by 44 percent, while
total turnover in secured lending and borrowing rose by 17
(Reporting by Sakari Suoninen and Eva Taylor; Editing by Toby