September 23, 2011 / 8:05 AM / 8 years ago

TEXT-Fitch:U.S. money fund exposure to European banks declines further

(The following statement was released by the rating agency)

Sept 23- U.S. prime money market funds (MMFs) further reduced their total exposure to European banks as of month-end August 2011, according to Fitch Ratings. European bank exposure currently represents 42.1% of total MMF holdings within Fitch’s sample, down from 47.2% as of month-end July. On a dollar basis, MMF exposure to European banks declined by 8% since month-end July and by 27% since month-end May.

‘Declining exposure to core European banks is being significantly offset by increasing investment in Australian, Canadian, Japanese and Nordic bank instruments,’ said Robert Grossman, Group Managing Director, Fitch Macro Credit Research.

Fitch’s analysis also found that the maturity profile of MMF CD exposures to European banks declined in some countries. As of month-end August, approximately 28% of MMF exposure to French bank CDs was in the shortest maturity bucket of seven days or fewer, a four-fold increase in this bucket relative to month-end June.

Fitch based its sample on the 10 largest U.S. prime MMFs with total exposure of $676 billion as of Aug. 31, 2011. This figure represents approximately 45% of the $1.49 trillion in total U.S. prime MMF assets. The full report ‘U.S. Money Funds and European Banks: Exposures and Maturities Decline Further’ is available at ‘www.fitchratings.com.’ This is the sixth in a series of reports that Fitch has published tracking MMF portfolio exposure to European financial institutions.

As discussed in a recent report by Fitch’s EMEA Financial Institutions group (see ‘European Banks and Market Turmoil: Prolonged Market Stress Negative for European Bank Credit Profiles’ published on Sept. 20, 2011), Fitch notes that market pressure on short-term liquidity is in general a concern, but it has to be considered in the context of each bank’s broader current funding and liquidity dynamics. Bank funding and liquidity are stronger than in the days leading up to the crisis in 2008. For those banks struggling to access short-term funds in the market, the ECB liquidity and recent dollar funding schemes are programmes put in place to address these market concerns in the near term.

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