) -- Central banks' coordinated effort Wednesday to reduce the cost of U.S. dollar funding provide a short-term boost to

Bank of America

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Wells Fargo

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JPMorgan Chase

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, but won't affect the long term outlook for these institutions.

While much focus has been directed at individual country-by-country loan exposures of the big U.S. financial institutions to Europe, those risks are less worrisome than the effect of a European recession on the U.S., according to Paul Miller, analyst at FBR Capital Markets.

"It's not what JPMorgan has exposed to Europe, it's what the exposure would be if Europe goes into recession, throws us into recession and we wake up 12 months from now with 12% unemployment rate," Miller says, adding that the central bank moves "have addressed liquidity, but they haven't addressed growth. Now if a bank fails over there that will take down growth, but they haven't really solved the debt problem over there."

Long term funding remains a concern for Europe, according to a note from Keefe, Bruyette and Woods.

"These actions do not address solvency issues in European sovereigns or European banks, and should not directly relieve the long term funding costs on European sovereigns," the note stated.

Nonetheless, the moves by the U.S. Federal Reserve, the European Central Bank, and the central banks of China, Japan, Canada and Switzerland to lower the cost of dollar-based funding for global financial institutions offer some temporary relief, which is the reason for the rally in shares of big banks. Citigroup and JPMorgan shares were both up by more than 6% Wednesday morning and Bank of America shares were up by roughly 5.5%. Shares of Wells Fargo, the least internationally focused of the largest four U.S. banks, were up by 4.78%.

"It's just that support that takes one element of the risk out of this equation, enabling them to do business with something that is a given, rather than constantly hedging," said Marty Mosby, analyst at Guggenheim Securities.

Richard Bove, analyst worth Rochdale Securities, says he is still looking for central banks to guarantee the obligations of private banks in Europe.

The liquidity injection "is the first of the two steps that would be occurring there," Bove says. "By stabilizing the position of the European banks they eliminate altogether the risks that were being posited for the big four American banks. They just take it off the table. So if risk doesn't exist to the same degree people thought it did these banks should be able to regain some type of price stability reflecting the underlying fundamentals of the banks themselves which at the moment are actually pretty good."


Written by Dan Freed in New York


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