As predicted back in February, European banks are beginning to exit their dollar businesses. They've reduced dollar denominated loans and sold dollar assets.
MarketWatch/Business Wire: This reduced appetite for MMF funding has likely contributed to a significant dip in Eurozone bank lending to project and trade finance, sectors that historically have largely been USD-denominated.That in turn has led to a reduced need for the Fed's dollar swap facility, which has fallen off sharply.
|Fed Liquidity Swap Facility|
It is important to note that the decline in the Fed's Liquidity Swap Facility does not necessarily mean an improvement in the strength of Eurozone's financial institutions. It is simply an indication that European banks will never again rely on US money market funds to this extent to finance their dollar operations. Neither does it point to Eurozone's banks obtaining alternative dollar funding sources such as unsecured bonds. Trying to issue unsecured dollar paper may be a difficult task indeed for these firms for years to come.