Deutsche Bundesbank Member Andreas Dombret spoke Wednesday on "Current developments in Germany and Europe." He said, "When I mention counterparties, please allow me to briefly address one current point of interest in financial markets on both sides of the Atlantic: US dollar funding of European banks. This is certainly an area that relevant authorities, including the Bundesbank, monitor closely. But let me offer you some assurance about the current situation -- in particular, of course, from the German point of view. Without a doubt unsecured US dollar funding markets have tightened somewhat recently. For example, US money market funds, which account for a non-negligible but small part of European banks' short-term liabilities, have become more selective when providing funding to non-domestic banks. But let me emphasize that we are very far away from the situation we witnessed in 2008. First, liquidity needs can be covered by a number of other means including secured funding with repos. Second, if need be, the ECB stands ready to mitigate potential bottlenecks, based on the swap agreement in place with the Fed. Third, the lion share of German and other European banks have used the rather benign market conditions in the first part of this year and have completed an over-proportional part -- or even all -- of their overall 2011 funding needs in the capital market segment. And let me make a final important point here: European banks, in general, have considerably improved their capital base making them less vulnerable to financial strains. Speaking about German banks, the Tier 1 capital ratio currently reaches 12.6% on average, having improved by about three percentage points between the end of 2008 and June 2011." See also, ICI's weekly "Money Market Mutual Fund Assets."
