European banks 'still reliant on central institutions'

17 September 2012

Financiers across Europe are still reliant on cash from central banks despite the easier access to alternative sources of credit, a new report has indicated.

According to the Financial Times, the rapid decline in the cost of collateralized borrowing throughout the summer has not resulted in many banks moving away from the regular use of funds from bodies such as the European Central Bank.

Following changes to regulations on the continent, European lenders are now able to fund certain types of loans through asset-backed securities (ABS) and then selling them to investors with interest.

This represents a similar system to that seen in the US, but the issuance of ABS to investors in Europe is now at its lowest point for three years as most companies continue to use assets as collateral to access central bank funding instead.

Steve Harrison, portfolio manager at Cairn Capital, told the news source: "Spreads have broken through to new levels this year and we expected to see issuance from [European] banks but that has not happened."

By Claire Archer

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