Bankruptcy

Overnight Interest Rates Double as Banks Hoard Cash

By J. Michael McBride

Why would banks hoard cash? One can speculate as to their reasons, but the fact is that this is exactly what is happening. One result of that action is that overnight interest rates doubled and now stand at their highest point since 9-11. (Another is the Federal reserve having to pump more and more and more money into the system as was noted in yesterday’s article on “priming the pump.”

“The London interbank offered rate, or Libor, that financial institutions charge each other to borrow soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers' Association. The rate was as low as 2.07 percent in June. …

"I have never seen anything remotely like this. The money market was typically the one thing that always worked," said Luca Jellinek, head of interest-rate strategy in London at Royal Bank of Scotland Group Plc. "It's the cardiovascular system of the financial body. When this happens, it's like a heart attack.""

Here is a link to the entire article:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNuUmNVcsRRQ&refer=worldwide

Michael

Full post as published by Texas Lawyer Blog on September 16, 2008 (boomark / email).