The financial crisis in Greece has spread to the European financial system, pushing up the cost of borrowing. Several international financial exchange traded funds (ETFs) have high exposure to banks in Europe. Be sure to know what they are.
On Monday, the London interbank offered rate, or Libor—the rate at which banks lend money to each other and a vital sign of their mutual trust—rose to its highest level since last July. In turn, European banks are being forced to pay more for short-term dollar borrowings than others in the United States or Asia, report Carrik Mollenkamp and Randall Smith and David Enrich for The Wall Street Journal.
Lenders are becoming all-too-skeptical about the risks that European banks are infusing throughout the banking system at this point. The Libor’s jump the most pronounced in European banks and borrowing costs are also increasing more quickly there than they are in the United States. [Financial ETFs: Weak Today, Opportunity Tomorrow?]
Analysts agree that the markets have already priced in a weaker European banking system. Investors there, however, are feeling that perhaps the governments there have lost their bank-saving appetites, which if true could put them at more risk. [What Bear Funds are Doing Now.]
For more stories about financial ETFs, visit our financial category.
- iShares S&P Global Financials (NYSEArca: IXG): 46.6%, banks; 25.2%, other financials; 19.6%, insurance; 26% in Europe