KEY POINTS:
The United States Federal Reserve has indicated that the credit crunch will continue deep into next year.
Chairman Ben Bernanke said yesterday regulators might have to continue offering emergency funding to investment banks into 2009. He said the Fed was committed to ensuring financial stability and would do whatever it could to get on top of the credit crisis.
"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end."
That would mean leading investment banks could continue to borrow from Fed facilities, which offer hundreds of billions of dollars at reduced rates of interest, if they find themselves constrained by liquidity problems.
While Wall St banks have made fewer calls on these facilities in recent weeks than when the funding was first offered, interbank interest rates remain significantly higher than US base rates, indicating that the credit squeeze is continuing.
Bernanke's offer will be welcomed by Wall St, but it reflects the limited impact regulators have had so far in dealing with the credit crisis since it began to bite a year ago.
"The presumption was that [the Fed was] going to wind down the lending programmes if, and only if, credit conditions improve - obviously that has not been the case," said William O'Donnell, director of interest rate strategy at UBS Securities.
"Money has become dear despite their efforts. The problems seem to be elevated and are actually creeping higher."
The Fed first began offering investment banks access to its emergency funding facilities in March, on the day it stepped in to prevent Bear Stearns from going under. The facility, previously only available to commercial banks, was originally intended to close in September.
- INDEPENDENT
