How US banks became blueprint for Europe In late 2008, with Lehman Brothers on the verge of collapse, no one would have expected the US banking system to become a model for anything other than financial chaos. Fast forward three-and-a-half years and America's banks have become the unlikely blueprint for European lenders still very much in the throes of their own debt-fuelled crisis. That European banks are still in crisis-mode seems to have been forgotten in recent months. This week it emerged that the European Central Bank could soon wind down one of its extraordinary liquidity support measures. The measure involves the central bank buying one of the stalwarts of the European bank funding market, so-called covered bonds. That €40bn programme pales in comparison to the €1tn provided by the ECB's longer-term refinancing operations, unleashed in December and again in February. The LTROs provided three-year loans to European banks that were, at the time, locked out of public funding markets. The LTROs supplanted the much narrower covered bond programme. But while European banks remain latched to central bank liquidity support, US lenders have been weaned off it. That dependence has implications for the wider economy and markets. Indeed, it's one reason the ECB offered banks liquidity support in the first place. Provide the banks with credit, it was said, and that credit would flow to other businesses. But loan growth in the region remains elusive. Banks are using the LTROs for orderly deleveraging more than anything else. Still, one can understand why some market commentators, such as Barclays analysts Simon Samuels, Mike Harrison and Nimish Rajkotia, are suggesting European financials look west for inspiration, and perhaps retool their businesses to suit a more American model of banking. They identify the "unique funding model" of European banks as a key cause of their predicament. Leverage remains stubbornly high in Europe. Loan-to-deposit ratios are more than 110 per cent on average, meaning the region's banks must still source a large amount of funding from skittish and unreliable wholesale markets. By contrast, the average loan-to-deposit ratio is about 78 per cent in the US, the analysts say. How have US banks managed those lower ratios? For one, America enjoys a deep corporate bond market. Some 60 to 70 per cent of corporate debt is sold directly into the bond market, to be snapped up by investors. Only the remainder is financed by banks. Compare that with Europe, where at least 70 per cent of such debt is funded through banks. "If Europe's corporate debt market were to develop along the US lines, then we estimate that could lower the loan-to-deposit ratio," say the analysts. Although much discussed, changes in funding structures of corporate debt in Europe have been glacial over the past decade. There are, though, signs of a change in pace. The cost of corporate funding in Europe is already lower than the cost of funding for banks, suggesting that there is little point for companies to go to banks for loans. That could encourage companies to sell more bonds into public markets. Some banks are preparing to wade more deeply into capital markets, too. Jean-Laurent Bonnafé, chief executive officer at BNP Paribas, France's biggest bank, told me he's already positioning his company to prepare for the corporate bond market assuming a bigger role in Europe. "Europe is going to move from a place where three fourths [of corporate debt] is funded through bank balance sheets, towards a more significant use of corporate bond markets," he said. We need to continue to develop our debt capital markets platform both in Europe and in the US. US banks will be chuffed. Deservedly or not, they are now being held up as an example of what their European rivals should look like. We're seeing opportunities in fixed income. We're seeing opportunities in equity. And we're seeing opportunities in banking," Rich Handler, chief executive officer of New York-based investment bank Jefferies, said this week of his European rivals" deleveraging. European banks able to make money out of tweaked business models are the fortunate few. For the rest, the future remains uncertain, and awash with central bank liquidity.