Us money fund lending to euro zone fell faster in june

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U.S. money market funds pulled money out of the euro zone at a faster pace in June as concerns about the region's debt crisis accelerated, with banks that contribute to the scandal plagued Libor rate in the region among the hardest hit, Credit Suisse said in a report. The exposure of taxable U.S. money market funds to the euro zone fell to 11.7 percent of their assets, the lowest since last August and down from 14.5 percent the previous month, the bank said, basing the analysis on information from data firm Crane Data. The overall size of the U.S. money fund industry also contracted by $40 billion to $2.22 trillion in the month, Credit Suisse said in the report sent on Wednesday."The situation for euro area bank funding in U.S. dollars for U.S. money funds appears to have become more precarious," analysts Ira Jersey and Michael Chang said in the report.

Euro zone banks struggled to obtain short-term dollar-based loans in late 2011 as U.S. money funds pulled out of the region, which was one factor behind coordinated central bank action in November to offer cheap long-term loans to banks to ease the funding crisis. Now, some banks are either finding it harder to obtain dollar-based borrowings or are seeking fewer loans as they instead rely on central bank funding facilities. U.S. money funds pulled most loans from Germany, France and the Netherlands in June, which are among the few countries in the euro zone that money funds have continued to lend to. The three countries saw outflows of $67 billion in the month.

"This appears to be an acceleration of the decline that began somewhat more gradually in May," the analysts said. Euro zone banks that contribute to the much maligned London interbank offered rate (Libor) also took the bulk of the outflows, with loans to these banks dropping by 24 percent to $178 billion, Credit Suisse said.

Pressure on banks that contribute to Libor has accelerated since Barclays said on June 27 that it will pay $453 million to U.S. and British authorities to settle allegations that it manipulated the rate. Of the five euro zone banks that participate in Libor, Deutsche Bank saw the largest decline. U.S. money funds cut loans to the bank by 33 percent in the month to around $60 billion. Lending to Societe Generale also fell by 30 percent to $30 billion and loans to Rabobank dropped 28 percent to $27 billion. Total loans all banks that participate in Libor fixings globally fell to $728 billion from $804 billion in May, Credit Suisse said. The declines in Europe were somewhat offset by an increase in loans to Libor panel banks in North America and Asia.

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