In a sign of a loss of confidence in the balance sheets of some of the European Union’s largest banks, interbank lending has fallen among large financial firms. The falloff of this practice was most acute during the EU credit crisis more than a year ago. A new round of the practice signals that many banks consider peers underfunded, at least in so far as they may hold bad assets — particularly of sovereign paper.

According to Reuters:

Euro zone banks are refusing to lend to peers in other countries in the common currency bloc, signaling a worrying fall in confidence that appears to have worsened since the Cyprus bailout earlier this year, data analyzed by Reuters showed.

In a trend that could reignite fears about the euro and its banks, European Central Bank data shows the share of interbank funding that crosses borders within the euro zone dropped by a third, to just 22.5 percent in April from 34.5 percent at the beginning of 2008.

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