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Foreign Exchange

Liquidity Crisis? What Liquidity Crisis

I was forwarded an e-mail that a somewhat naïve salesman at a major bank sent out to clients this week.

 “After yesterday’s spike in o/n rate it looks like the situation in the Eonia market is getting worse and worse and ECB are not intervening yet. We are really struggling to fund all our positions: Our pricing will reflect this anomaly,” it said.

Of course, the bank concerned denies it has a liquidity problem and I actually believe it, so I’m not going to name it. In this instance, I’ve not been nobbled. There’s been no threat to pull advertising or set the lawyers loose on me. I actually believe the bank and think the note is over-dramatic; I’m sure the bank concerned will take care to avoid further such scare-mongering. The potential damage it could do to the bank itself is huge – you only have to read the masses of negative press Barclays has attracted, which I can’t help but feel has been inspired by an ulterior motive. I sense that someone well-practiced in the dark arts of spin has sowed that particular seed, but time will tell.

I had assumed that the tightness in unsecured money would have proved a real boon to the repo market. According to Godfried de Vidts, aka Mr Repo and director of European affairs at Icap, pressures have also crept into the secured lending market.

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