The world is still waiting to assess the full effect of the fallout from the second attempt by George W Bush to get the $700bn bailout package past the House of Representatives.
Last week, I noted the negative effect that this had on the UK, with Libor shooting up to terrifying levels for lenders, causing them to rush to the Bank of England cap in hand, like Oliver Twist looking for seconds. And after another week of stock market uncertainty, the ripples are still being felt.
While the Crosby Review has been delayed – presumably to see what the impact of the US decision will be – the Bank of England has been pumping money into the system to stop many lenders’ funding lines from drying up completely.
At the end of the week, the Bank took the decision to extend the types of collateral eligible in its current weekly sterling three-month repo operations. Whether this decision was taken principally because the rumours of another bank being in trouble are true, it will clearly help stabilise the HBoS-Lloyds deal, as both parties’ share prices were wobbly over concerns – rightly or wrongly – by investors about HBoS’ ability to raise funds. The move should also scotch rumours that the deal might be in doubt, which has also been helped by a number of big players saying they too have confidence in the deal.
The worry is that until a concrete plan, or plans, are put in place, we will continue to lurch from one crisis to another. This piecemeal approach is not working. The market has gone beyond the stage where it can help itself if liquidity is made available by the central bank. The deal in the US will definitely help to increase confidence, but we still need our own solutions and stricter rules about how lenders lend and fund themselves. And we need them now. n