Australian Prudential Regulation Authority chairman John Laker declared on Friday that the Euro-crisis has effectively closed the global markets for long-term unsecured debt. Today's European debt announcement could begin the markets' re-opening or it could make the coming funding task look more challenging. Laker's comments to a Senate committee show APRA is concerned about the funding challenge facing banks early next year. One estimate is that Australian banks will need around $80 billion of wholesale funding in calendar 2012, a decent share of it right at the start of the year. Laker's public assessment is that banks cannot currently go to the global long-term unsecured debt markets for that funding: prices are so high that such a move would look "desperate". Prices for Australian major bank credit default swaps help explain Laker's concern. These prices - essentially the price of insuring debt - have spiked higher than they were during the global financial crisis. They spent September and early October above 200 basis points, before dropping back to 174 points last Friday. (The graph shows ANZ CDS prices, but prices for other big four CDS are pretty much identical.) There are other sources of wholesale debt - covered bonds, securitisation, and even the Reserve Bank of Australia. But APRA would clearly rather have global markets working properly again. And right now those markets are, if not completely shut, then looking pretty shaky in the face of the Euro-crisis. Europeans, in particular, are saving as never before, while demand for bank lending is falling. Interbank lending has dropped. And with US banks exposed to Europe, the crisis is affecting activity on the Atlantic's western shore as well. The crisis of confidence is draining away activity - activity in a market on which Australian banks have been relying. If European leaders can say enough to make markets believe that Europeanbanks and governments are safe, the crisis could start to abate and markets could open up again. If their solution does not convince enough people, then market dysfunction could worsen. Not all of Australia's financial officialdom is quite as concerned about the funding challenge as APRA. The Australian Office of Financial Management, for instance, thinks conditions have improved in recent weeks. A speech on bank funding last week by the Reserve Bank of Australia's Guy Debelle shows the RBA is less concerned than APRA about the funding task. But APRA's job is to worry about the worst-case scenarios. This evening they'll have a very close eye on the news out of Europe.