The silent run on European banks, update

Separately, bankers estimate that Italian banks lost the equivalent of €40bn-worth of money market funding in July. And while money market funds are still lending to French banks, the duration of deals has shrivelled dramatically, from several months to just a few weeks (at most). This matters, since French banks rely on money markets for about €200bn of funding.

Now, the good news is that these raw numbers are small compared to the total volume of money that eurozone banks raise in the wholesale and interbank markets, which is around €8,000bn. Better still, the European Central Bank has stepped into the gap to replace those vanishing funds. That has kept the system running, even as funding costs for eurozone banks have exploded to a level which are “massively prohibitive” – and thus unsustainable – for most banks, as Suki Mann, analyst at Société Générale says.

Here is the article.  The “Better still” sounds funny to my ears, but I think you get the point.  I’ve been saying for quite a while that this is the mechanism which will do in the (current configuration of the) euro, I suppose we will see.