KEY POINTS:
Central bankers are becoming nervous that a renewed credit crunch could destabilise financial markets around the end of next month, and the US Federal Reserve has pumped an initial US$8 billion ($10.5 billion) into the market to help ease the mounting pressure.
Wall St banks have been hoarding cash rather than lending it, fearful that losses on US mortgages and related products are undermining the strength of their balance sheets.
The Federal Reserve said the problem could become acute before December 31, when many institutions close their books on the financial year and when many vital accounting calculations are made. In a highly unusual move, the Federal Reserve Bank said yesterday that it was putting an additional US$8 billion into the financial system through 43-day loans, money that won't have to be paid back until January 10.
If Wall St's banks become unwilling or unable to lend to each other, there could be knock-on consequences throughout the financial system, with high-street lenders and other businesses finding it impossible or punitively expensive to find the short-term money required to fund their operations.
It was just such a credit crunch that led to the problems at Northern Rock at the height of the crisis.
- INDEPENDENT
