The cost of insuring European bank debt rose on Monday after Moody's Investors Service warned about Dexia's liquidity position and exposure to Greek debt amid reports that a rescue package may be in the works for the French-Belgian bank.

According to RBS analyst Christy Hajiloizou, Dexia's short-term funding position is most problematic, as the bank is over-reliant on wholesale funding. Also,"any further hits on Greek government bonds would likely generate a need to bolster capital cushion," she said.