Despite nearly US$1 trillion in support pledged to prop-up the eurozone, the increase in the LIBOR rate indicates that banks are growing more cautious when it comes to lending between the financial institutions. Overall, the rate banks say they charge each other for three-month loans in dollars rose to a nine-month high, even after news of the massive support package was made public.
Bank lending “conveys a lack of trust in the system,” said Robert Baur, chief global economist at Des Moines, Iowa- based Principal Global Investors, which manages $222 billion. “Banks are a little reluctant to lend overnight as they don’t know the full extent of what is on the bank balance sheets.”
Source: Bloomberg
