The reintroduction of a one-year repo facility by the European Central Bank (ECB) in October 2011 underlined the funding pressures bearing down on banks in the eurozone. Comprehensive data is only available to August, but it already shows that the decline in reliance on financing from the ECB that had taken place since mid-2010 has begun to reverse.
Perhaps even more worrying, the problem has spread beyond the emergency room patients in the eurozone periphery such as Greece and Ireland, to touch core banking systems such as those in Italy and France. Banks in both these countries have strong deposit bases, but even so, their use of ECB repo facilities more than doubled going into the third quarter of 2011 (see chart). By contrast with 2008, the market dislocation in 2011 has focused on sovereign debt, making ECB repo a tougher proposition.
