The specter of six major financial institutions failing in a mere two weeks has confirmed the wisdom of banks’ tendency to hang onto their money and not lend it out to their bretheren. The bailout bill passed last week appears to have made nary a dent in the tightfistedness; it’s an open question as to whether a newly bulked up TAF auction today (three times its former size) will have any impact.
The euro interbank offered rate, or Euribor, that banks charge each other for three-month euro loans advanced 1 basis point to 5.35 percent today, a seventh straight all-time high, European Banking Federation data showed. Borrowing in dollars for three months in London increased to about 4.4 percent, said Jan Misch, a trader in Stuttgart at Landesbank Baden-Wuerttemberg, Germany’s biggest state-owned bank. Asian rates rose and the Libor-OIS spread, a gauge of cash scarcity among banks, widened to a record.
“Money market conditions will continue to be very tight and this will not improve in the short term,” said Dwyfor Evans, a foreign-exchange strategist at State Street Global Markets in Hong Kong. “There’s an absence of trust.”…
The Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, rose to 298 basis points today. It was at 129 basis points two weeks ago and 81 basis points a month ago….
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 389 basis points, the most since Bloomberg began compiling the data in 1984….
Banks borrowed the most since February 2001 from the European Central Bank at its emergency rate as the credit crunch worsened. Financial institutions borrowed 24.6 billion euros ($33.4 billion) for overnight on Oct. 3 at the central bank’s marginal lending rate of 5.25 percent, which is one percentage point above its benchmark rate. At the same time, banks deposited 38.9 billion euros with the ECB, the Frankfurt-based central bank said in a statement today. The deposit rate is 3.25 percent.
The Euribor for one-month loans in euros advanced 2 basis points to 5.15 percent today, reaching a record for a fifth day, according to the EBF.