In two conference calls last week, Fitch Ratings and Moody’s sought to capture the effect of the commercial paper (CP) market's lack of liquidity on the wider banking outlook.In the Moody’s call, Pierre Cailleteau, chief economist at Moody’s, noted that the macro-economic outlook for growth in the US is likely to be negative while the rest of the world economy is positive.
“However, risk aversion has spread considerably and poses challenges to central banks to ensure the availability of liquidity within banking systems, and, more generally, its distribution or ‘fluidity’ throughout the financial system,” said Cailleteau.
Of particular concern to Cailleteau was the TED spread, which looks at the difference between the three-month Libor and treasury bill spreads.
Although there were clear problems with the lack of short-term funding available in the market, Moody’s saw geographical differences in the CP market.
“Today, the ability to roll CP is severely hindered by lack of investor demand,” said Reynold Leegerstee, team managing director at Moody’s. “The liquidity situation in the asset-backed commercial paper markets generally appears to be the tightest we have ever observed, but not all markets are affected the same way.”
The agencies compared the near total closure of the structured CP market in Europe with the US and Asia, where shorter maturity can still be placed. Referring specifically to the German banking market, and the problems of IKB and Sachsen LB, Fitch sought to allay fears of a systemic crisis in Germany.
Both of these banks had to be bailed out of their conduit, structured investment vehicle (SIV) or SIV-lite commitments this month. The rating agency estimates total exposure to these vehicles by German banks to be around $300 billion.
“Fitch is of the opinion that most German banks are well positioned to absorb any external shocks of limited size, this especially in light of the considerable improvements in asset quality and capitalisation over the last five years,” said the agency in a report released last week.
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