The tensions in Greece have led to an increase in CDS spreads for some banks since early 2015.....ECB

                                                  Economic Bulletin      

04/02/2016                      

         Excerpt from ...    Update on economic and monetary developments

Banks’ access to market funding deteriorated during the crisis, with funding flows diminishing and the cost of issuing debt securities increasing substantially.

 Around the time of the turmoil related to the sub-prime mortgage crisis in the United States and the collapse of Lehman Brothers there was a general increase in market funding costs in the euro area (see Chart 11). While this increase was more significant in vulnerable countries, it was driven by a small number of large banks that were particularly affected by the collapse of Lehman Brothers. 

When the sovereign debt crisis broke out in early 2010, the level and dispersion of market funding costs increased in vulnerable countries, while banks in less vulnerable countries were more insulated from the turmoil. By the middle of 2011, as the sovereign debt crisis intensified, market funding costs for banks in both vulnerable and less vulnerable countries had increased, although the gap between them also widened.[53] 

While the introduction at the end of 2011 and in early 2012 of the LTROs with a three-year maturity acted as a strong backstop to prevent forced deleveraging of banks and helped subdue market funding costs, these remained high overall until the OMT announcement in mid-2012. Bond yields have since fallen across both vulnerable and less vulnerable countries. Market funding costs declined further for most euro area banks as a result of the expanded APP, at least until the re-pricing in financial markets observed in April 2015.

 Developments in credit default swap (CDS) spreads, which abstract from differences in the type and maturity of the debt securities issued by banks, were broadly in line with bank bond yields. Distributions of five-year CDS spreads show that the sovereign debt crisis led to a significant increase in the dispersion of the perceived credit risk of banks, most notably in vulnerable countries (see Chart 12). 

The ECB’s monetary policy actions since the second half of 2012 and the strengthening of the European supervisory, regulatory and resolution framework have led to a decline in the stress in financial markets and a decrease in the dispersion of the perceived risk of euro area banks, as well as in their wholesale market funding costs. Nonetheless, renewed tensions in Greece have led to an increase in CDS spreads for some banks since early 2015.

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