Post by jeffolie on Dec 14, 2007 11:52:15 GMT -6
Money-Market Rates Fail to Respond to Bank Measures (Update9)
By Gavin Finch
Dec. 14 (Bloomberg) -- The biggest concerted effort by central banks in six years to restore confidence in global money markets is showing little sign of success.
The rates banks charge each other for three-month loans held at seven-year highs for a second day after policy makers in the U.S., U.K., Canada, Switzerland and the euro region agreed to ease the logjam in short-term credit markets. The cost of borrowing in euros stayed at 4.95 percent, the British Bankers' Association said today, up from last month's low of 4.57 percent and 3.68 percent a year ago.
``The market clearly doesn't believe central banks can do anything about this crisis,'' said Nathalie Fillet, senior interest-rate strategist at BNP Paribas SA in London. ``This is not going to be a magical solution to the problem.''
Policy makers are reacting to more than $70 billion of losses announced by financial institutions this year and estimates of about $300 billion more on securities linked to subprime mortgages, collateralized-debt obligations and structured investment vehicles, or SIVs. Citigroup Inc. said yesterday it will take over seven investment funds and assume $58 billion of debt to avoid forced asset sales.
The surge in money-market rates since August is fueling concern that the slump in bank lending will exacerbate a slowdown in global economic growth. Goldman Sachs Group Inc. in a report last month estimated losses related to record home foreclosures may be as high as $400 billion for financial companies. If accurate, banks, brokerages and hedge funds would need to cut lending by $2 trillion, triggering a ``substantial recession,'' the firm said.
In a sign of banks' increased perception that loans are becoming riskier, they are demanding 95 basis points more than the European Central Bank's key interest rate to lend three- month cash in euros, up from an average of 25 basis points in the first half of the year.
www.bloomberg.com/apps/news?pid=20601087&sid=anx42jsurAYw&refer=home
By Gavin Finch
Dec. 14 (Bloomberg) -- The biggest concerted effort by central banks in six years to restore confidence in global money markets is showing little sign of success.
The rates banks charge each other for three-month loans held at seven-year highs for a second day after policy makers in the U.S., U.K., Canada, Switzerland and the euro region agreed to ease the logjam in short-term credit markets. The cost of borrowing in euros stayed at 4.95 percent, the British Bankers' Association said today, up from last month's low of 4.57 percent and 3.68 percent a year ago.
``The market clearly doesn't believe central banks can do anything about this crisis,'' said Nathalie Fillet, senior interest-rate strategist at BNP Paribas SA in London. ``This is not going to be a magical solution to the problem.''
Policy makers are reacting to more than $70 billion of losses announced by financial institutions this year and estimates of about $300 billion more on securities linked to subprime mortgages, collateralized-debt obligations and structured investment vehicles, or SIVs. Citigroup Inc. said yesterday it will take over seven investment funds and assume $58 billion of debt to avoid forced asset sales.
The surge in money-market rates since August is fueling concern that the slump in bank lending will exacerbate a slowdown in global economic growth. Goldman Sachs Group Inc. in a report last month estimated losses related to record home foreclosures may be as high as $400 billion for financial companies. If accurate, banks, brokerages and hedge funds would need to cut lending by $2 trillion, triggering a ``substantial recession,'' the firm said.
In a sign of banks' increased perception that loans are becoming riskier, they are demanding 95 basis points more than the European Central Bank's key interest rate to lend three- month cash in euros, up from an average of 25 basis points in the first half of the year.
www.bloomberg.com/apps/news?pid=20601087&sid=anx42jsurAYw&refer=home