Co-operatives return to Libor lending

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A group of European co-operative lenders will resume unsecured lending of up to three months at the London interbank offered rate (Libor) in an effort to kickstart interbank lending.

The Unico Banking Group represents eight banks with a market share of 21 per cent of the European retail banking market, including France’s Crédit Agricole, Germany’s DZ Bank and Rabobank of the Netherlands.

The group said on Wednesday it had come to the decision after talks last week in Washington DC.

“During the last months the interbank market has completely dried up,” Bert Heemskerk, Rabobank’s chief executive, said. “All of our banks are extremely solid. We thought why not go back to trusting each other?”

Interbank lending, even within the group, had been restricted mostly to overnight lending, he said, effectively wiping out three-month interbank lending. Loans had also often only been extended on a secured basis.

The agreement also covers Italy’s ICCREA Holding, Finland’s Pohjola Bank, Austria’s Raiffeisen Zentralbank, and Raiffeisen Switzerland.

However, Spain’s Banco Cooperativo, which is an “associate” rather than full member of Unico, is not participating.

The funding available within the group was between €10bn and €15bn ($13.5bn-$20.3bn), Unico said, adding that the initiative was a step towards restoring confidence in the European banking community.

However, it did not address the issue of the very high Libor rates in the market in recent weeks, despite a round of co-ordinated interest rate cuts by central banks last week. Euro three-month Libor stood at 5.175 per cent yesterday, against the main eurozone policy rate of 3.75 per cent.

Concern about counterparty risk caused interbank lending to seize up in recent weeks. But concerns over liquidity could also make investors slow to return to the term money markets even as trust is gradually restored.

Mr Heemskerk said the Unico initiative complemented moves this week by European governments to guarantee bank loans and, where necessary, inject capital into banks.

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