Banks Show No Signs of Easing in Step With Fed’s Cuts

Banks Show No Signs of Easing in Step With Fed’s Cuts
Dec. 17 (Bloomberg) --By Liz Capo McCormick and Gavin Finch


HIGHLIGHTS

• Federal Reserve and Treasury: Credit Markets show no signs of ending the 18-month freeze, as evidenced by the unprecedented gap between what banks and the U.S. government pay to borrow money.
• TED SPREAD: Libor, that banks charge each other for three-month loans and Treasury bill rates is six times wider than before markets began to seize up in June 2007. Even though the so-called TED spread narrowed to 1.55 percentage points from 4.64 percentage points in October.
• Consumer Credit: fell $6.4 billion in August and $3.5 billion in October, making 2008 the first year with at least two declines since 1992, according to Fed data. August’s decline was the biggest in at least 65 years.
• Bond Sales: by companies rated below investment-grade fell 57 percent to $63.3 billion this year from 2007, according to data compiled by Bloomberg. The extra yield investors demand to own the debt instead of Treasuries rose to a record 21.4 percentage points yesterday from 1.32 percent 18 months ago.
• Personal Bankruptcies: rose 34 percent in the third quarter from the same period of 2007, according to the American Bankruptcy Institute in Alexandria, Virginia. Moody’s Investors Service predicted in November that corporate defaults in the U.S. will surge threefold to 11.4 percent in the next 12 months.
• 85 % of Domestic Banks: tightened lending standards on commercial and industrial loans to large and mid- size firms, the highest since the survey began in its current format in 1991, the Fed said in its latest quarterly Senior Loan Officer Survey conducted between Oct. 2 and Oct. 16.
• Finally: “There isn’t a community banker in America who doesn’t want to make good loans,” said James Mckillop, chief executive officer of the Independent Bankers’ Bank of Lake Mary, Florida, which provides loans to 350 community banks in Florida and Georgia. “But finding loans that they feel are going to be good is becoming more and more difficult.”

COMMENTS:

Federal Reserve cuts rates and the nightmare continues. It will be a number of years before we complete all the outstanding commitments that were made during more prosperous circumstances.

James Monachino