Where next for banks?
Friday, 14 March 2008
By Mr Banker
This week the US Central Bank announced a $US200 billion liquidity package. Does that fix the chaotic credit market?
No.
Although a massive amount of money, $US200 billion is a small amount relative to the size of the problem. According to the futures market, the next interest rate decision in the US is now likely to be a 50 point cut rather than a 75 point cut. If that is all that $US200 billion can do, just how big is the problem?
Quite simply, the US Government doesn’t have enough money to solve the problem – all it can do is delay and defer pain in the hope that external factors come to the rescue.
Back in October I explained that informal credit rationing had already started as evidenced by a lack of interest in tenders at the very large end of our market.
Last week, one bank – according to my inside sources – extended that pricing discipline to the small corporate ($20 million to $100 million) part of our market. The credit squeeze is extending because demand for credit far exceeds supply.
Where next? The banks will try as hard as they can to steer clear of further home loan rates rises as they are a political hot potato, but watch for rate rises on credit cards, personal loans, and small business loans and leases.
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