The banks of Italy and Spin escalated their borrowing from the European Central Bank in November.
Italian banks had to borrow 153.2 billion euros in emergency liquidity from the ECB in November, up from 111.3 billion euros at the end of October, Bank of Italy data showed, another big leap in reliance on the central bank which has almost quadrupled since June, when Italian lenders took 41.3 billion euros.
This indicates that bank runs are in progress. The financial press does not use the words “bank runs,” but “emergency liquidity” points to the problem. Depositors are pulling money out of Spanish and Italian banks and depositing it in German banks.
On November 30, the Federal Reserve and five other central banks announced a co-ordinated plan to make foreign currencies available at low rates to European banks or any other borrowers. Result:
Euro zone banks took more than $50 billion in the ECB’s first dollar funding operation since the world’s leading central banks agreed last week to cut their cost, five times the $10 billion forecast in a Reuters poll of money market traders.
This is accelerating so rapidly that money market traders — the most sophisticated traders on earth — have been caught flat-footed.
This indicates that the credit system in Europe is unraveling fast. Nevertheless, the ECB is resisting any announcement of loosening of money to support of PIIGS governments. It is willing to help banks from collapsing. I think this is what we can expect from now on.