Banks Work Hard to Gain Credit
In an attempt to get out of debt and avoid further credit crunch, banks across Europe are desperately borrowing at record rates. Bloomberg has the details:
The European Central Bank lent 3.9 billion euros ($5.5 billion) at its penalty rate, the most in almost three years, suggesting credit markets are still unable to meet banks’ borrowing needs.
The three-month London inter-bank offered rate for euros rose to 4.79 percent today, a six-year high, from 4.73 percent, according to the British Bankers’ Association. The increase shows that the fallout from losses on subprime mortgages is still making banks reluctant to lend to each other. The U.S. commercial paper market shrank for a seventh straight week as a Federal Reserve interest-rate cut failed to ease credit concern.
“It’s likely that money markets are going to be in a state of shock for some time to come,” said Stuart Thomson, a bond fund manager at Resolution Investment Management in Glasgow, Scotland, which manages $60 billion. “No one knows where the bodies are buried.”
Sadly this increased borrowing cannot continue endlessly. Eventually banks will find it difficult to obtain further credit, and that will translate into consumers not being able to get loans.
The economies of western nations seem to be at the critical point in a ponzi scheme where the money coming in starts to slow down faster than money goes out. Such a situation rarely ends well.
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