The Wilder View

Libor inching up – this could be a problem

This is not good news: banks are starting to hoard cash. From Bloomberg (hat tip, reader Jay):

The cost of borrowing in dollars is rising as the global recession deepens and central bank efforts to prop up the financial system fail to prevent a growing number of banks from requiring government bailouts.

The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans stayed at 1.33 percent today, near the highest level in since Jan. 8 and up from this year’s low of 1.08 percent on Jan. 14, the British Bankers’ Association said. The Libor-OIS spread, a gauge of bank reluctance to lend, widened to the most since Jan. 9. Short-term borrowing costs are increasing as banks hoard cash and governments struggle to thaw credit markets after finance companies reported almost $1.2 trillion of writedowns and losses since the start of 2007. Banco Popolare SC yesterday became Italy’s first lender to seek state aid. Lloyds Banking Group Plc, the U.K.’s largest mortgage provider, ceded control to the government March 7. U.S. regulators seized 17 failing banks so far this year. “The market is beginning to think that the solution is either not politically possible, or we can’t afford it, or maybe there isn’t a solution,” said Bob Baur, chief global economist at Des Moines, Iowa-based Principal Global Investors, which manages $198 billion of assets. Libor’s rise “is just another indication of that concern,” he said. Brings back memories of September 2008.

Originally published at the News N Economics blog and reproduced here with the author’s permission.

2 Responses to “Libor inching up – this could be a problem”

AnonymousMarch 15th, 2009 at 4:38 am

Well it seems that UBS has to pay some 3% and to offer it’s good assets as collateral to be able to borrow from other swiss banks. Since libor 3 months is down to 0.45 and UBS has a fairly big portfolio of housing and lombard loans at libor + 0.8 to 1.5, while the outflow of deposits continues, seems it’s woes are not over. UBS is certainly the most hated word of the swiss vocabulary

GuestMarch 15th, 2009 at 8:27 am

The contract default swaps CDS give a more cautious view of the state of the financials than the equities markets are willing to read. Here for once trust the unwilling lenders that explains for the higher inter bank non lending rates.The libor and euribor will be much higher before year end

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