Regular readers know that the cause of this bank run is investors asking the question: which banks are solvent and which banks are not. Due to the lack of disclosure of current asset and liability-level data, market participants are unable to answer this question. As a result, the prudent step is to reduce the amount of exposure to all banks.
The falls [in UK bank stock prices] came as investors continued to worry about funding conditions for European banks, with shares in several major French, German and Italian banks closing at new lows despite the imposition more than a week ago of short-selling bans on financial sector companies.
Concerns at the outlook for European banks were stoked further by Fitch Ratings releasing figures on Monday showing the increased difficulty lenders are having borrowing from US money market funds, one of the largest lenders to the industry.
At the end of June, more than half of all the borrowing provided to French banks by money market funds was for in excess of 61 days, but by the end of last month this had fallen to about a third of the total. More alarmingly, Fitch said money market funds had almost closed their borrowing to Spanish and Italian banks.
The withdrawal mirrors difficulties faced by Portuguese and Irish banks in the first half of last year as they became increasingly dependent on the European Central Bank of short-term funding.
In total, the 10 US money market funds tracked by Fitch have cut their outstanding borrowing to European companies by about $100bn (£60.7bn) in the past two months to $658bn.
"Money market funds are highly risk averse and what we are seeing could be a sign of them showing concerns on some credits," said Fitch analyst Robert Grossman.
In Switzerland the Swiss National Bank was again forced to intervene in the currency markets to hold down the rise of the franc, which fell slightly against the euro.