Sunday, 28 September 2008

The real reason why interbank rates are rising

I thought this was a very telling comment. It is a quote from an anonymous banker talking to a Times reporter about the recent tightening of the credit crunch:

“People keep saying that banks are scared to lend to one another, but that’s not quite it. The money we lend is not ours, but our customers’. With everything going on in the markets, our corporate customers are only willing to deposit it overnight. It’s a corporate equivalent of all our personal customers moving their savings into their current accounts in case they need the money.”

It is an obvious point, but corporate customers aren't covered by deposit insurance. Any corporate entity leaving their money in time deposit in either a US or UK bank is simply asking for trouble.

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