Key euro-priced interbank lending rates hovered at their highest levels in over two years on Friday ahead of European bank stress test results which could provide some reassurance to the bruised interbank market. The latest round of eurozone banking stress tests due later on Friday is expected to boost confidence in the sector to a degree but not enough to fully mend the interbank market as long as a long-term solution to the debt crisis remains elusive.
Up to 15 banks are expected to fail the stress tests which the European Central Bank and market participants hope will persuade investors that the European Union is finally coming clean about the extent of the eurozone banks' problems. "In the long term it's a very good thing that we get more transparency... that there will be more disclosure about banks' holdings of government bonds in Europe, especially for institutions which are not quoted," said Laurent Bilke, a strategist at Nomura.
London interbank offered rates for three-month euros fixed up at 1.55250 percent, their highest since March 2009, from 1.55125 percent on Thursday. Equivalent Euribor rates paused in their upward march and held steady at 1.608 percent. Banks remained reluctant to lend to each other for anything beyond a week in the secured and unsecured markets before the stress tests and as the debt crisis spreads to Italy and Spain with even triple-A rated France catching a cold. The Eonia overnight rate fixed at 1.461 percent from 1.476 percent but could climb next week with banks likely to front-load reserve requirements as the ECB's new maintenance period gets underway, reducing the amount of excess liquidity.
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