By Richard Leong
NEW YORK, Sept 30 The cost for a key short-term
funding source for financial institutions climbed on Friday to
its highest level since the global financial crisis nearly eight
years ago due to quarter-end funding pressure and worries about
the banking sector.
Investors pare their lending to financial institutions at
the end of each quarter to conserve cash. This drives up
borrowing costs for banks during this period before they retreat
when the new quarter begins.
In the meantime, investors are jittery about the banking
sector including concerns about Deutsche Bank and
Wells Fargo & Co
The U.S. Justice Department has demanded that Deutsche Bank,
Germany's biggest lender, pay up to $14 billion for misselling
mortgage-backed securities. This has spurred speculation whether
Deutsche could raise the funds to pay the fine.
Wells Fargo, meanwhile, earlier this month reached a $190
million settlement regarding the bank's staff opening accounts
without customers' knowledge for years. On Thursday, it was
fined $24 million on allegation it repossessed cars owned by
service members without obtaining a court order.
Concerns over such issues drove up the interest rate on
repurchase agreements, in which commercial and investment banks
use securities as collateral to raise cash from investors. It
was last quoted at 1.15-1.20 percent, compared with 0.95
percent, according to ICAP data.
Interest rates for banks to borrow dollars have also been
rising in recent weeks as U.S. prime money market funds have
pared their purchases of short-term bank debt.
A number of prime money funds have been converting to funds
that own only U.S. government securities in an effort to be
exempted from new industry regulations that go into effort on
(Reporting by Richard Leong; Editing by Chizu Nomiyama)