* U.S. lending to euro zone banks up for fifth month -Fitch
* ECB measures slowly restoring confidence in banking sector
* Lending still down vs May 2011, unlikely to rebound fully
By William James
LONDON, Jan 3 Euro zone banks won better access
to the vast pools of short-term dollar funding for the fifth
month in a row in November according to a Fitch Ratings survey
of U.S. money market funds.
Lending to euro zone banks by the 10 largest U.S. prime
money market funds, which had a joint exposure of $670 billion,
increased by 8 percent during November, Fitch said.
Analysts said the move showed that European Central Bank
measures to shore up the euro zone's financial sector were
slowly winning back the overseas investor confidence lost in
2011, during one of the worst phases of the euro zone debt
"The main reason is that the ECB is really backing any bank
financing need and that has reduced the default risk for the
banks... all that has reduced the risk perception for U.S. money
fund investors," said ING strategist Alessandro Giansanti.
Access to U.S. money market funds, which Fitch said held
assets worth $1.47 trillion, is crucial for euro zone banks,
which need to borrow short term to pay for assets denominated in
This pool of liquidity can quickly dry up, leaving banks
scrambling, as witnessed in late 2011 when confidence in the
strength of euro zone banks crashed and the cost of dollar loans
That prompted the European Central Bank to act, flooding
banks with long-term euro-denominated loans and opening up cheap
credit lines to the U.S. Federal Reserve. This relieved the
worst of the tension and bought policymakers time to plan
structural reforms to the bloc's financial institution.
While the Fitch data shows this has been effective in
restoring some credit lines into the euro zone, lending remains
60 percent below levels seen in May 2011.
"It is unlikely that (money market fund) exposures to euro
zone banks will revert to end-May 2011 levels in the near term,
particularly given European banking supervisors' efforts to
limit banks' use of short-term U.S. dollar funding," Fitch said
in the report.
New rules on banks' capital needs were also likely to curb
issuance of the short-term dollar-denominated debt instruments
popular with U.S. funds, limiting the extent to which
trans-Atlantic lending will return, the report added.