Everyone is joining aboard to solve this world credit crisis. The U.S. government along with several international governments planned a series of global, coordinated steps to shore up investor confidence and encourage banks to start lending to each other both domestically and abroad. The Federal Reserve announced it would provide unlimited dollars, on a short-term basis, to the Bank of England, the European Central Bank and the Swiss National Bank. On Tuesday, the Bank of Japan joined the program.
This is wonderful news to the skittish banking industry, which has been holding onto cash, rather than lending to other financial institutions. When banks don’t lend to each other, consumers have a hard time obtaining home mortgages, auto loans, and tuition loans. It’s this push and pull between the banks that allow the money to circulate and invest into various programs and systems.
The bank-to-bank rate, known as Libor, is a daily average of what 16 different banks charge other banks to lend money in London and is used to calculate adjustable rate mortgages. The higher the rate, the tougher it could be for homeowners to pay those mortgages. Libor rates fell to 1.94% from 2.14% on Wednesday. Last week, the Libor rate was 5.09% and spiked to 6.88% during the panic. These lower rates are an indication that the banks are feeling calm enough to lend each other.
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