There are signs that banks and others are expecting another round of credit write-offs. Banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens, Bloomberg News reported Monday.
For borrowing, banks are charging each other a 77-basis-point premium above what traders predict the U.S Federal Reserve's daily, effective Federal Funds rate will average over the next three months, up from 24 basis points in January, Bloomberg News reported.
Banks concerned about potential write-offs, global slowdown
Economist Peter Dawson said Monday two factors are driving the widening short-term lending spread.
"Rightly or mistakenly, there's a suspicion that selected banks will announce another round of write-offs," Dawson said. "Second, banks are coming to grips with the reality of the global slowdown. The slowdown suggests reduced revenue for banks, which would further hurt already strained balance sheets, and make banks more-reluctant to lend."
In August 2007, banks began to hoard cash and pare-back lending after subprime mortgage defaults forced two Bear Stearns hedge funds to seek bankruptcy protection. A series of regional, mortgage asset-related write-offs followed, as the housing boom ended, first in the United States, then in the United Kingdom. Mortgage-related credit losses now total more than $500 billion worldwide, Dawson said.
For borrowing, banks are charging each other a 77-basis-point premium above what traders predict the U.S Federal Reserve's daily, effective Federal Funds rate will average over the next three months, up from 24 basis points in January, Bloomberg News reported.
Banks concerned about potential write-offs, global slowdown
Economist Peter Dawson said Monday two factors are driving the widening short-term lending spread.
"Rightly or mistakenly, there's a suspicion that selected banks will announce another round of write-offs," Dawson said. "Second, banks are coming to grips with the reality of the global slowdown. The slowdown suggests reduced revenue for banks, which would further hurt already strained balance sheets, and make banks more-reluctant to lend."
In August 2007, banks began to hoard cash and pare-back lending after subprime mortgage defaults forced two Bear Stearns hedge funds to seek bankruptcy protection. A series of regional, mortgage asset-related write-offs followed, as the housing boom ended, first in the United States, then in the United Kingdom. Mortgage-related credit losses now total more than $500 billion worldwide, Dawson said.
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