Are Europe's banks coming off the critical list? There were vocal sighs of relief all round yesterday as the eurozone's finance houses borrowed much less from the European Central Bank than most analysts had been expecting.
In total €132bn (£108bn) of three-month money was loaned to 171 banks. The City's number crunchers were expecting many more to tap the ECB for much more money. A figure in excess of €250bn would not have caused any surprise, particularly given that the eurozone's banks will today have to repay €442bn of longer-term (12-month) money advanced by the ECB. Central bankers want to stop banks from relying on the crutch of long-term funding they've been providing. They're offering shorter-term funds as a replacement.
There's another auction of very short term (six-day) money today, which ought to add further clarity to the picture – not least because a big take-up could lead to all yesterday's optimism evaporating.
But if that doesn't happen, it will confirm the view of optimists that the conclusion to be drawn from yesterday is that the wholesale funding market for banks is slowly returning to health (and also that banks are needing to borrow less because they have repaired their balance sheets).
This was the view of the markets yesterday. The euro immediately strengthened, while stock markets were steady, despite some worrying economic news out of the US. So saints be praised, we're at last emerging from the mess of the last three years, right?
Would that it were so easy. It is true banks have found it rather easier than expected to borrow from each other. But things are by no means back to normal. Interbank lending rates shot up yesterday, largely because of the demand, and it could well be that all the available commercial funds were gobbled up to pay back the ECB.
Even then, there were still 171 banks that couldn't get enough cash and so needed to soak the ECB for that €132bn. What does this say about them, and how many came from Spain, Portugal and Greece? It could also mean that there won't be much in the way of funds available during the coming months. If that sounds to you as if something of a squeeze is in prospect, you might very well be right. It may not be anything like as brutal as the last credit crunch, but a squeeze is still a squeeze, and consumers and businesses that rely on the eurozone banks for credit will be the ultimate victims.
Before we start crowing, as we sit back and watch from the sterling denominated sidelines, it is also worth noting that the Bank of England has estimated that British banks need to find an astonishing £800bn over the next 30 months. It looks as if they can forget looking to the eurozone for help with that. It also looks as if the coalition is going to find itself in some difficulty if it tries to force British banks to lend more money to small businesses and consumers. Those banks don't have any money, and will have trouble finding it, unless the Bank of England can be persuaded to keep the crutches it has provided. Which it doesn't want to do, because it would be all too easy for banks to become dependent on crutches like the special liquidity and credit guarantee schemes.
In other words, forget praising any saints because we're a long way from being out of the woods and a lot of banks will still need to be propped up by a lot of government money for years to come.
Which raises a question. Given the sheer scale of the support that has been provided to the banking sector – and the support that is still being provided – are we really getting enough back?
Banks have been told to hold more cash, it is true. Shareholders will have to accept lower returns as a result. But that's about all, outside a couple of limp levies (and the one announced by George Osborne looks very, very limp). Given the funding issues they face at the moment, and the need to keep at least some credit trickling into the wider economy, soaking the banks now would probably be a bad idea. But what about in three or four years' time, when (hopefully) the financial system is truly in better shape? Maybe now is not the time to soak the banks, but they still need to be told that a day of reckoning will come.