ML-Implode News - European Banks Floated With Short-Term Loans From Cash-Rich Firms

Europe's banks are struggling to secure the cash to fund their day-to-day business and have largely stopped lending to each other for fear Europe's sovereign debt crisis could land any of their peers in trouble.

As a result a group of well-known, cash-rich companies with solid cash flows has stepped in the repo market, which provides a form of lending so far almost exclusively in use between banks, and between banks and central banks. One market participant said in one key area of lending companies now accounted for 25 percent of these deals.

These are different than simply depositing the money because:

"Companies in the past were ... happy to deposit cash on an unsecured basis to a bank for an interest payment," said Frank Reiss, who oversees some of the repo business at Euroclear, the Brussels-based settlement house owned by a group of banks.

"Now following the crisis, we have seen that companies are engaging in repos secured with collateral against the cash they are lending," said Reiss. Euroclear is the largest administrator of repo trades in Europe.

But here's the ultimate irony:

But the banks are parking most of the money they borrow back at the ECB rather than trusting to lend to each other.

Relevant:

European Banks Floated With Short-Term Loans From Cash-Rich Firms