Word: interbank
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According to Liew, that's because the monetary-policy prescriptions offered by central banks have thus far done little to cure the constipated credit markets that are stalling the global economy. Under normal circumstances, interest-rate cuts by central banks would promote interbank lending. But Wednesday's coordinated rate cuts in the U.S., Europe and Asia have failed to restore lenders' confidence. The London Interbank Offered Rate, the benchmark for short-term interbank lending rates, actually rose to 4.75% Thursday, its highest level of the year. In Hong Kong, interbank lending rates have doubled in the past month. Banks remain...
...world's economists have been nearly unanimous in saying that only a coordinated, worldwide effort can stem the current credit crunch and companion market meltdown. Their proposed solutions include: cut interest rates, recapitalize the banks and insure deposits; get governments to step in and guarantee short-term interbank lending. "The first good thing about this situation is that it does not call for different central banks and Treasuries to do different things, but rather for them all to do the same thing in unison without fouling each other's oars. That should be relatively easy to arrange," wrote University...
...credit markets moving again, economists have called for governments to guarantee short-term interbank loans. "Recapitalization by itself won't fix the interbank lending market," says Roger Craine, another Berkeley professor and a former Federal Reserve economist. The big problem now is that banks are unwilling to let go of their money because of counterparty risk - the fear that the borrower may go under, sticking the bank with the loss. "If the bank you lend to has assets in a hedge fund that goes under then they are likely to go under," explains Craine. A coordinated interbank debt guarantee...
...default insurance for 10 of the world's most prominent banks, including Morgan Stanley and Goldman Sachs, demonstrate that there is a lot of market concern about the stability of leading financial institutions, even after the Treasury's recent steps. Another piece of evidence: the premiums on three-month interbank loans remain very high in comparison with overnight loans, signaling banks' deep uncertainty about the sector's stability...
...That's because credit markets, which affect the ability of businesses and governments to borrow to fund day-to-day operations, continue to tighten in Asia as banks become more nervous about lending. In Hong Kong, the one-month interbank lending rate has doubled in the past month to 4%. Central banks are trying to pump liquidity into financial markets to avert a credit crunch. India on Monday cut the amount of cash that banks must deposit with the central bank in an attempt to loosen credit. "Credit markets are quite global," says Kirby Daley, senior strategist at financial services...