An interesting chart from Credit Suisse (h/t to Fabrizio Goria @FGoria) on marginal funding costs of Euro area banks:
Four points to note:
- Marginal funding costs are now in line (albeit with a bit of volatility) with the costs in 2004-2006 period. This should be good, right?.. But
- Source of marginal funding is now exclusively CDS-backed as opposed to Euribor, and
- Spread over the repo rate is still consistent with the 2008 and 2011 spikes and is not getting any better with recent rate cuts
- LTROs helped, but their effect is no longer present and since late 2012 we are seemingly in a 'long-run' trend pattern or in an 'absent catalyst' base?
Question one is, if base rate creeps up, what will happen to funding costs? Question two is, if the US base creeps up, what will happen to euro area funding costs?
The latter is non-trivial: we've heard of the emerging markets rot on foot of 'tapering' talks...
