illustration of this, the cost for banks to borrow euros from each other has risen sharply since significant concerns re - emerged about greece in may this year. graph 2 shows that the cost of european banks borrowing from each other in the short - term unsecured market has risen to its highest level in the post - lehman period, reflecting heightened counterparty concerns. by way of contrast, the equivalent spread in the australian market ( the spread between the bank bill rate and the expected cash rate ), while higher than earlier in the year, has remained markedly lower than that in europe. there have been spikes in this spread on occasion in the past few months, but they have reflected sharp downward movements in the expected cash rate, rather than upward movements in the bank bill rate. 3 graph 2 to mitigate the impact of the sharp increase in the cost of unsecured interbank lending for european banks, the ecb has recently announced an expansion of its open market operations. since may 2010, the ecb has stood willing to provide three month funding to banks in unlimited amount ( against acceptable collateral ) at its policy rate. at its most recent meeting in early october, it lengthened the maturities for which it was willing to provide this funding to terms as long as 13 months. that is, banks can source unlimited euros from the ecb at fixed interest rates for periods of at least one year. thus european banks should not have difficulty in sourcing euro funding for some time to come, provided they hold the appropriate collateral. the ecb is intermediating the interbank market, thereby see the discussion in the ecb ’ s latest financial stability review. on occasion, the sharp movements have also reflected factors including around the middle and end of the month as the reference bank bills move from one half of the month to the next. see boge m and i wilson ( 2011 ), “ the domestic market for short - term debt securities ”, rba bulletin, september, pp 39 – 48. bis central bankers ’ speeches circumventing the counterparty concerns, as has long been the proper practice of central banks in periods of stress at least since bagehot. graph 3 graph 4 the take - up of this short - term liquidity by banks in europe is reflected in the expansion in the balance sheet of the ecb. 4 since april this year, the ecb ’ s lending to banks has grown by about €180 billion ( or 40 per cent ) as a result of

. at the moment, we are in another period where that scrutiny is intense. my aim today has been to provide you with some context to that scrutiny, particularly around bank funding. the actions by the ecb, together with the fed through the provision of the us dollar swap facility, should alleviate some of the funding tensions for european banks. in effect, provided they have appropriate collateral, european banks should be able to meet their liquidity needs in the period ahead both in euros, and in us dollars. i have also provided some comparison with the situation facing the australian banks. we are not seeing the same sort of stresses for the australian banks, as are present for some of the european banks. the australian banks ’ funding structures are considerably more resilient to periods of stressed markets than they were previously, given the changes that have occurred over recent years. see my speech delivered earlier in the year : “ collateral, funding and liquidity ”, address to conference on systemic risk, basel iii, financial stability and regulation, sydney, 28 june. bis central bankers ’ speeches