There's plenty going on in credit markets Monday; unfortunately, with banks gripped by fear, nearly all of the news is bad as financial institutions continue to hoard cash in spite of intervention by the U.S. and European central banks to inject liquidity into markets.
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The Federal Reserve Board announced a series of steps, including
doubling the size of its emergency loan program for banks to $900
billion and starting to pay banks interest on the reserves
that institutions are required to keep with the Fed. For its part, the
Treasury Department is increasing the size of bill and note auctions.
Meanwhile, European leaders met over the weekend in Paris and agreed that they
would bail out their own nations' banks, but stopped short of any kind
of regional rescue plan.
However, the increasingly drastic steps being taken by the U.S. and European Union
don't appear to be having a significant effect on the psyche of bankers
who have all but ended lending to each other, thereby freezing
credit markets.
LIBOR, the cost banks charge each other for overnight borrowing in
dollars, shot up to 2.36875% from 1.99625% on Friday, while sterling
LIBORr rose to 5.08125% from 5% Friday, and euro LIBOR rose to 4.27375%
from 4.105%. Things were just as bleak in equity markets as the
Dow Jones cratered by more than 550 points in afternoon trading. -
George White
See Fed statement
