Euro rates drop; govts step up bank rescue efforts

Money-market rates for euro fell after policy-makers offered banks unlimited dollar funding and European governments pledged to take “all necessary steps” to shore up confidence among lenders.

The euro interbank offered rate, or Euribor, for one-week loans dropped 26 basis points to 4.37 per cent today — the biggest decline this year — according to the European Banking Federation. The London interbank offered rate, or Libor, for three-month dollar loans would drop 9 basis points to 4.73 per cent, according to David Buik, a market analyst at BGC Partners.

The Federal Reserve today said central banks around the world would offer banks as much dollar funding as required. Leaders of the 15 nations using the common currency agreed yesterday to guarantee new bank debt and use taxpayers’ money to keep lenders afloat. The three-month rate banks charge for euro loans dropped by the most since January 22.

“Taken together, the latest moves increase the chances that we will begin to see some relaxation of the intense funding stresses that have prevailed in commercial paper and inter-bank markets,” a team, including Dominic Wilson, senior global economist at Goldman Sachs Group Inc in New York, wrote in an investor report today. “This is because bank solvency risk should decline as the government offers protection.’’