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ECB President Trichet work Portugal rescue Georges Gobet/AFP/Getty Images

By Simon Kennedy and Gavin Finch

Four years to the month since the beginning of the global credit crisis the European Central Bank has the lender first instance of the continent banks broken developed. With the bond market for all but the strongest lenders switched off most affected banks in Greece, Portugal, Italy and Spain of water keep the ECB unlimited loans. “Banks more and more nervous to other banks exposed to be, because they are hoarding liquidity and suspicious are more of the financial statements of the other banks,” wrote Guillaume Tiberghien, analyst with Exane BNP Paribas, in a note to clients on the Aug. 19.

At this time deposited almost three times in this year on the average, rather than the money to other banks lend banks €105.9 billion ($152 billion) with the ECB overnight. They are also storage dollars and hoard money in safe havens such as Swiss francs. “I’m not sleep at night”, Charles Wyplosz, Director of the Geneva International Center for says money and banking studies. “We have moved into a new phase of the crisis.”

Investors fear that to. The price of European Bank stocks fell 22 percent Aug. 1 to 22 Aug., led by Royal Bank of Scotland (45 percent) and Société Générale France (39 percent). Investors demand debt securities rather than benchmark government debt increased the additional yield to 2.98 percentage points to 19 Aug., since July 2009, data from Bank of America Merrill Lynch map buy the highest value.

Despite the ECB efforts can some of the banks in Europe towards insolvency inching. The cost of insuring the bonds of 25 European banks and insurance companies set a record high at the Aug. 24 of 257 basis points higher than the 149 BP spike collapse of Lehman Brothers in the fall of 2008, according to the Markit iTraxx financial index of credit default swaps. The banks not necessary to mark most of their holdings of government debt at the market price. If they did, some would be forced to look for default or a rescue package.

Morgan Stanley estimates that banks in Europe must raise €80 billion by the end of the year. Their ability to raise capital has strong investor fears has been curbed. Banks in the region hold €98.2 billion of Greek Government bonds, €317 billion of the Italian government debt and approximately 280 billion € Spanish bonds, to information of the European banking authority.

The Federal Reserve, which as much as $1.2 trillion of loans and advances in December 2008, wound, most of its emergency programs early in 2010. One of the few exceptions is the Central Bank for a liquidity swap lines, the $ to the ECB and others, so that they can auction banks from the dollar in their own countries.

In contrast to Jean-Claude Trichet are the ECB and its President, still in the Bank-rescue business. “The Central Bank left to more clearly to between banks, fund rules is the only one”, says Christoph Rieger, head of fixed income strategy at Commerzbank in Frankfurt. After one its key rate twice this year the counter inflation, provided the ECB in August relief for banks by buying Italian and Spanish bonds for the first time, lending unlimited funds for six months and even an unnamed Bank with urgently needed dollars.

The ECB maintains a role that began there in August 2007 when she injected cash into markets she froze. The ECB balance sheet 73 percent greater than in August 2007, and his last lap of the purchase of the bonds is it now to the allegations, that of saving wasteful Nations is there a rule of the euro treaty founding and his credibility undermined. The Central Bank is partly Act, because Governments still to ratify a plan to extend the scope of a €440 billion rescue system, so government bonds on the open market, which, to inject capital into the banks would enable Governments buy it. Although the Governments of the Member States approve the euro, the new financing from should fall, nobody can say with certainty.

The financial difficulties of the banks in Europe one of the reasons for the cutting of Morgan Stanley is on economists Aug. 17 referred to its forecast for the euro area growth to 0.5 per cent next year less than half of the 1.2 percent previously expected. Tobias Blattner says European consumers and businesses more dependent from banks to finance than their counterparts U.S., a former ECB economist now at Daiwa capital markets Europe in London.

Lena Komileva, set of 10 strategy director at Brown Brothers Harriman in London, says that the ECB will have no choice but to expand the attack role that it plays. Refusal to do so would risk of a European Bank standard by the end of the year, she says: “Markets are back in new territory.” “The crisis is now a whole new history.”

The bottom line:

Some European banks hold almost half of Euro 1 billion in questionable Government bonds. You are relying on ECB financing in business stay.

Kennedy is a reporter for Bloomberg News. Finch is a reporter for Bloomberg News.

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