European banks are now considering options outside the European Central Bank's (ECB) repo program as the bank's 12-month refinancing operation has ended.

Yesterday saw the expiration of the biggest ECB auction with over €4 billion ($4.97 billion) of one-year paper repaid.

The ECB has extended its three-month and six-day facilities unlimited cash tenders until September, although only a total of 171 banks asked for fresh funds, the ECB said.  The ECB will still be lending commercial banks a total of €131.933 billion for three months.  

Banks rolled over approximately €243 billion from the three-month and six-day facilities, according to a Dow Jones report 

"The market is now  split into banks that cannot afford to let go of ECB money, particularly Southern European banks that have predominantly rolled from one year into the six-day and three-month options," a market analyst said. "But, the better banks are not finding the three-month trade at 1% appealing and have opted not to roll money into these programs."

The weaker banks continue to face an interbank market that is closed to them and, as a result, have opted to access the private placement market, which requires banks to pay much higher spreads. For now, however, these banks are borrowing as much as they can.

The more stable banks will likely find that funding may look more attractive via options such as total return swaps. One banker source said that there are banks refinancing collateral to fund via total return swaps or, in rare cases, some banks might consider selling off a block of assets to a private buyer.

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