If the point of yesterday's "rescue" was to ease liquidity in the banking sector, it has not had any discernible effect on the all-important Libor (London inter-bank offered rate).
According to Bloomberg, the Libor dollar rate has jumped to the highest level in the year and the credit is staying frozen.
The rate for three-month loans rose to 4.75 percent, the highest level since 28 December and, while the overnight rate fell to 5.09 percent, it was still 3.59 percent more than the US Federal Bank's 1.5 percent target rate. The three-month rate in euros held at a record high of 5.39 percent.
Says Barry Moran, a currency trader in Dublin at Bank of Ireland - the country's second-biggest bank, "To see little or no reaction in the fixings is very disappointing and reinforces the fact that Libor is broken and the transmission mechanism from central banks isn't working … Things are still very stressed and we don't know what's going to fix it."
Alessandro Tentori, an interest-rate strategist in London at BNP Paribas SA, adds to the gloom, saying that, "I don't see a wave of liquidity coming into the market … People are still holding on to their cash because there's still a great deal of uncertainty out there."
Then we get Cezar Bayonito who tells us that, "Libor spreads are still wide, which suggest offshore banks are not willing to take more risks lending to other banks." Bayonito is a liquidity trader at Allied Banking Corp. He adds: "Interest-rate cuts will be of little help in the near term because the issue is trust, not rates."
Interestingly, Bloomberg then gives us a little background, telling us that Libor, set by 16 banks in a daily survey by the British Bankers' Association at about noon in London, determines rates on $360 trillion of financial products worldwide, from home loans to derivatives.
That actually puts the bank rescue in perspective. Of the two sums on offer from the Bank of England, £200 billion as lending and £250 billion as loan guarantees, this is supposed to kick-start a market of $360 trillion. Given the paper losses arising from the write-downs under the mark-to-market accounting system, this is about 0.2 percent by value of the market - a drop in the ocean.
Mervyn King, governor of the Bank of England (pictured), had better get his printing presses cranked up.
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