The cost for European banks to fund in dollars rose, signaling that investors view global policy makers’ decision to offer unlimited loans in the currency as a short-term solution that doesn’t address the euro region’s underlying problems. “Major central banks have merely treated the symptom rather than the cause,” said Michael Derks, the chief strategist at foreign-exchange broker FxPro in London. The cost of converting euro payments into dollars, measured by the three-month cross-currency basis swap, was 84 basis points below the euro interbank offered rate as of 10:06 a.m. in London, from 81.9 basis points yesterday, after the European Central Bank and peers around the world made it easier to fund in the greenback. The ECB and its counterparts in the U.K., Switzerland, Japan and the U.S. said yesterday they’ll provide unlimited three-month money to lenders in three tenders starting October. They acted after dollar funding dried up for European banks, particularly French lenders, amid concern Greece won’t be able to avoid defaulting on its debt. The cost of one-year dollar funding also climbed, with the cross-currency basis swap for that period at 63.4 basis points under Euribor, compared with 62.1 basis points yesterday, according to data compiled by Bloomberg. The difference was 75.2 basis points on Sept. 13, when the swap was the most expensive since December 2008. The euro weakened 0.5 percent to $1.3802, paring a weekly increase to 1.1 percent. Euribor-OIS The Euribor-OIS spread, the difference between three-month Euribor and overnight index swaps, fell to 75.5 basis points, from 76.9 yesterday, still within nine basis points of the highest level since March 2009, reached Sept. 12. The Markit iTraxx Financial Index of credit-default swaps insuring the senior debt of 25 lenders and insurers dropped for a fourth day, tumbling eight basis points to a two-week low of 253, heading for its biggest-ever weekly decline, according to JPMorgan Chase & Co. The index surged to a closing-price record of 314 basis points on Sept. 12. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A decline signals an improvement in investor perceptions of credit quality. To contact the reporters on this story: John Glover in London at johnglover@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net

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