BNP Paribas (BNP) SA, France’s largest bank, said it has “an excess of short-term liquidity” in U.S. dollars and that the company has to deposit the extra funds at the U.S. Federal Reserve. “It is an additional clue of how much jammed the interbank market is,” said Christophe Nijdam, a Paris-based analyst at AlphaValue. “There is no obligation to deposit excess U.S. dollar funds at the Fed as far as I know. It could be deposited with other banks.” BNP Paribas has “a sizeable liquidity buffer,” the Paris- based bank said in a note to clients and investors dated Sept. 6 and obtained by Bloomberg. The lender joins Societe Generale SA and Credit Agricole SA (ACA), France’s second- and third-biggest banks, respectively, in providing details on financing from U.S. money-market funds. Societe Generale (GLE) has fallen 52 percent this year in Paris trading amid funding concerns and the European sovereign-debt crisis. BNP Paribas has declined 36 percent in the period. In August, BNP “experienced a shortening in maturities available and some decrease in the amounts coming from U.S. money-market funds,” the bank said. The company gets U.S. dollar short-term funding from sources including corporates, central banks and wealth-management clients with financing in the currency spread across the U.S., Gulf countries, Asia- Pacific and Western Europe, it said, without giving any figure for U.S. dollar funding needs. Passing On Costs “Alternative U.S. dollar funding sources are of course more expensive and we have to pass that additional cost on to our U.S. dollar borrowing clients,” BNP Paribas said. “In practice, some of them may not accept and U.S. dollar funding needs may come down.” “This shows a bias in favor of trading activities rather than financing the real economy,” said AlphaValue’s Nijdam. For a bank, “it’s much easier and faster to decrease the trading book rather than the loan book,” he said. The reduction in the willingness of banks to lend to each other is mostly an anticipation of new Basel rules and “not mainly due to counterparty risk issues,” the French lender said. The interbank market situation today “is very different” compared with the crisis that followed Lehman Brothers Holdings Inc.’s 2008 collapse, the company said. BNP Paribas reiterated that it has about 150 billion euros ($211 billion) of assets eligible to central banks, including $30 billion eligible to the Fed, according to the note. The lender also repeated it completed its 2011 medium- and long-term funding program of 35 billion euros. The euro region has a “core of wealthy and sound countries,” BNP Paribas said. The bank doesn’t see a “specific risk” that France’s sovereign debt might be downgraded after Standard & Poor’s last month lowered the U.S.’s credit rating to AA+ from AAA on Aug. 5. BNP Paribas should “gradually” comply with capital requirements for systemically important financial institutions with no need of any capital injection, it said. To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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