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Hoarding by banks stokes fear over crisis Chris Giles and James Politi Central banks' efforts to ease strains in the money markets are failing to stop financial institutions from hoarding cash, stoking fears that the recent respite in equity markets may not signal the end of the credit crisis. Banks' borrowing costs - a sign of their willingness to lend to each other - in the US, eurozone and the UK rose again even after the Federal Reserve's unprecedented activity in lending to retail and investment banks against weaker than usual collateral and similar action in Europe. The continued friction in the money markets came even as stock markets were showing new signs of optimism in spite of fresh data from the US showing consumers at their most pessimistic for 35 years and house prices falling at the fastest rate on record.
In London, where the Bank of England has faced criticism for not being as proactive as other central banks, the three-month Libor rate was set yesterday at 5.995 per cent, its highest of the year. This is nearly 0.9 percentage points above the level investors demand for risk-free money, a spread nearly as high as that which led to central bank interventions in September and December. The European Central Bank allocated €216bn (£168bn) in seven-day funds in its regular weekly operation yesterday - some €50bn higher than the amount it estimated would have normally been needed - at an average rate of 4.28 per cent, which was the highest since late September. The Fed's latest lending to banks under its Term Auction Facility was also in heavy demand, receiving bids for $88.9bn compared with the $50bn on offer, an excess of demand almost as great as the previous auction two weeks ago, before the collapse of Bear Stearns.
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