Global money market rates hit 9-yr high

The cost of borrowing in dollars for three months has jumped the most since 1999, with banks hoarding cash amid concern that more financial institutions will fail.

The London Inter-Bank Offered Rate, or Libor, rose 19 basis points to 3.06 per cent, the British Bankers’ Association (BBA) said today. The increase was the biggest since September 29, 1999. The overnight dollar rate fell 1.41 percentage points to 5.03 per cent today. It soared 3.33 percentage points yesterday, the largest increase in its history. It was at 2.14 per cent a week ago.

“Everybody is worrying about which bank is going to go bankrupt next,’’ said Ronald Tharun, a money-market trader in Stuttgart at Landesbank Baden-Wuerttemberg, Germany’s biggest state-owned bank. “There’s almost nothing being traded in the money markets. Nobody trusts anyone else.’’

 

Credit markets seized up as the collapse of Lehman Brothers Holdings and the US government’s rescue of the American International Group (AIG) spurred concern that more financial companies may collapse. HBOS, the UK’s biggest mortgage lender, slid as much as 52 per cent today on speculation that it may not have access to funding. The shares rebounded after two people familiar with the situation said the Lloyds TSB Group is in talks to buy the bank.

The cost of borrowing in the euro for three months rose half a basis point to 4.97 per cent today, the European Banking Federation said. That’s the highest level since December 5, 2000.

Averting collapse

AIG averted the worst financial collapse in history yesterday by accepting a $85-billion federal bailout and giving the government a majority stake. The Federal Reserve rescued AIG, while refusing aid to Lehman, which filed for bankruptcy two days ago, because financial markets were more prepared for a Lehman failure, a Fed staff official said.

Since the start of the last year, the world’s biggest financial institutions posted almost $516 billion in sub-prime-related losses and writedowns. Eleven US banks collapsed since January. Corporate bond sales in the US and Europe have slumped 42 per cent from a year ago, according to the data compiled by Bloomberg.