Sep 05 2007
Still not much trust between the banks
In the UK interest rates have effectively gone up by 1% as banks have been wary of each other’s credit status and pieces of paper in the money markets. The Bank of England has stood aloof, not changing its own bank rate and allowing the markets to make it dearer to borrow.
In the US and Euroland the central banks have intervened more to try to keep short rates in line with official rates.
Government paper (Treasury bills, short term bonds) is in strong demand, as banks and others seek "quality" and spurn other paper in case it comes from institutions that have lost too much in dodgy mortgages or other loans.
It’s a far from healthy situation. It’s driven by a lack of clear information. Most banks are profitable and can easily absorb any losses they may have made so far from the sub prime disaster. We need more figures from them all to reassure markets, and especially so banks can reassure each other.
A state backed German bank has had to reveal more serious difficulties, and to seek help, showing how far the problems of the US mortgage market spread out from the epicentre of the turbulence.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
It is certainly very worrying to hear financial experts talk about problems related to sub-prime that may yet lay undiscovered. This is certainly a time for more transparency. As you say the lack of information is making the markets nervous. I’m glad that you are keeping a watchful eye on the situation as it develops John. Your observations are always very interesting to read.
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