Banks could tap ECB on dollar funding woes

It’s looking increasingly likely more European banks will be forced to tap the European Central Bank’s US dollar facility, as stress in the cross currency basis swap market has once again become acute this week.

“We are more or less at levels where banks are indifferent about going to the ECB or the FX market for dollar funding. Over the last few days spreads have widened dramatically in the FX market, making dollar funding more expensive. As a result, banks may well want to start tapping the ECB dollar facility more,” said Pavan Wadhwa, global head of rates strategy at JP Morgan.