Libor Rises and Bank Stress Measures Worsen

[girl gone mad]

Ah, when you thought the news from equity markets was bad enough, we get a second helping on the interbank front. From Bloomberg:

"The cost of borrowing in dollars overnight in London rose as the increased likelihood of a global recession spurred banks to hoard cash even after policy makers pumped record amounts of the U.S. currency into financial markets.

The London interbank offered rate, or Libor, that banks charge for such loans climbed 7 basis points to 1.28 percent today, British Bankers' Association said. It gained for the first time in 10 days yesterday. The comparable rate for U.K. pounds jumped 19 basis points to 4.75 percent. The Libor-OIS spread, a measure of cash scarcity, widened by the most since Oct. 10.

``The level of activity in the money markets remains significantly below standard norms and subject to sporadic abnormalities that can only be a function of illiquidity,'' said Charles Diebel, head of European rates strategy at Nomura International Plc in London.

The thaw in lending that began earlier this month after policy makers pumped cash into money markets and governments bailed out banks may be faltering as the global economy slides into a recession. Credit markets froze after the bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15 as financial institutions hoarded cash on concern more banks would fail....

The Libor-OIS spread, which measures the difference between the three-month dollar rate and the overnight indexed swap rate, widened 8 basis points to 262 basis points today. It was at 364 basis points on Oct. 10, widening from 354 basis points a day earlier. A basis point is 0.01 percentage point.

The difference between what banks and the U.S. Treasury pay to borrow for three months, the so-called TED spread, was at 261 basis points, up from 257 basis points yesterday. It was at 112 basis points two months ago."

http://www.nakedcapitalism.com/2008/10/libor-rises-and-bank-stress-measures.html

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