US prime money market funds are reducing their exposure to European banks, according to a report published on August 22 by the Fitch ratings agency, amid growing concern about their ability to find financing.
The funds, which loan cash on a short-term basis to financial institutions, governments and companies, reduced their exposure to European banks in dollar terms at the end of July by nine percent from the end of June.
The reduction was 20.4 percent from the end of May. European banks accounted for 47 percent of the $658 billion portfolio of the US' top 10 prime money market funds (which held 43 percent of funds). Their exposure to German banks fell to 4.4 percent from 5.3 percent at the end of June, French banks dropped 14.1 percent from 14.3 percent, and British banks slipped to 10.5 percent from 10.6 percent.
Exposure to Spanish and Italian banks fell to nearly zero from 0.8 percent. By bank, French bank BNP Paribas was top at 4.3 percent, followed by the Dutch bank Rabobank and Britain's Barclays (3.8 percent). The monthly report comes as interbank lending rates have risen steadily in recent months, with some European banks having had to turn to the European Central Bank for funding while others park cash there as they are afraid tto lend it to other banks.