Interbank Trading Suspended in Europe
An article published by Bloomberg takes a look at the recent agreement among European banks to suspend trading in the second mortgage debt market. According to the article:
- European banks agreed to suspend trading in the $2.8 trillion market for mortgage debt known as covered bonds to halt a slump that has closed the region’s main source of financing for home lenders.
- The European Covered Bond Council, an industry group that represents securities firms and borrowers, recommended banks withdraw from trades for the first time in its three-year history until Nov. 26.
- “In light of the current market situation and in order to avoid undue over-acceleration in the widening of spreads,” the committee of banks and borrowers “recommends that inter-bank market making be suspended,” the council said in an e-mailed press statement.
- “Conditions have really weakened over recent days,”said Andreas Denger, a covered bond analyst at Calyon SA in London. “Most investors are not willing to invest in the current volatile market.”
- “Without market making between banks, investors will shun the sales of new covered bonds.”
Is it any wonder that banks worldwide are scared? After seeing what has been happening in the United States, it would be foolish for other nations to not take serious precautions. But will it be enough? Right now, all they can hope to do is “avoid undue over-acceleration” of the problem. That doesn’t mean that they will be able to stop the credit crisis from seriously hurting their economy. All anyone can do now is wait and see if these decisions will help anything.
November 27, 2007 | Filed Under 2nd Mortgage
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