Bank-to-bank funding costs mostly rose yesterday despite ample money market liquidity as worries about the financial system mounted after the Bank of Spain took over the local savings bank CajaSur at the weekend.
The news, which came after CajaSur's planned merger with another small lender failed, came as money market stress has risen on fears the eurozone sovereign debt crisis will hurt banks' balance sheets and weaken governments' ability to provide help for struggling financial institutions. The benchmark three-month dollar London interbank offered rate (Libor) rose to 0.50969 per cent from 0.49688 per cent on Friday – a fresh 10-month high – while the equivalent euro Libor was fixed at 0.63438 per cent, just a touch lower from Friday's four-month peak.
Despite this month's announcement of a $1 trillion emergency package to help Greece, analysts said there was still no confidence that eurozone governments will be able to solve the problem. "We are back in uncertain territory," said Darren Williams, of Alliance Bernstein.
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