European Banking Crisis - US is entirely at fault for the global crisis due to irresponsible lending

European Banking Crisis : Britain’s PM Brown said the US is entirely at fault for the global crisis due to irresponsible lending. “We have led the world today with a proposal to restructure our banking system. We are taking the steps that I believe other countries will take in the future.” The three-part UK plan announced today entails £200 billion in a “Special Liquidity Scheme,” £50 billion in direct investment in 8 banks, probably in the form of preferred shares, and a guarantee of bank bond issuance of £250 billion. It might well be called a 4-point plan since it includes menacing remarks about executive compensation. There was no favorable announcement effect, which must gall Brown and Darling-stocks continued to fall, including bank stocks, and the pound to us dollars bounced only to 1.7665 before falling back (from the low of 1.7315 yesterday). But on the face of it, it’s a better plan than the Paulson plan—more encompassing.

The Swedish Riksbank said it will lend up to SKr 5 billion to Iceland’s biggest bank, Kaupthing, to help it avoid “liquidity problems” (and protect Swedish depositors). In Spain, the government said it will inject €30-50 billion into the banks (buying up paper) and also raise the guarantee for bank deposits from €20,000 to €100,000.

The EU finance minsiters meeting yesterday agreed that bank deposits should be guaranteed up to €50,000 and on “joint principles to guide bank bailouts,” according to the WSJ. The orientation is to invest in the banks themselves rather than to buy their paper, the US solution.

The ministers noted the European approach is cheaper.

In the money market—where the real action is—today the ECB allotted $70 billion in a 1-day US dollar facility to eurozone financial institutions at a marginal lending rate of 9.5%. Not a typo, 9.5%. Market News reports that “The operation, which had a pre-set maximum allotment volume of $70 billion, received 69 bids and the total bid volume was $122.03 billion. 96.04% of bids were allotted at the marginal lending rate, the ECB said. Today was the first time the ECB's applied a multiple rate auction method. The change from the single rate method means that "the auction method will be the same for the overnight US dollar operations and for the Eurosystem's euro credit operations," the ECB said yesterday. This is the 16th overnight U.S. dollar funding operation conducted by the ECB” since the agreement on Sept 18.

Separately, the Bank of England allotted $8.564 billion in overnight money at a lowest accepted rate of 1.010%, and covered 0.86 times. The weighted average rate was 3.592%. It also allotted $12.49 billion in 1-week money at a lowest accepted rate of 1.210%, and covered 1.01 times. The weighted average rate was 3.286%. These numbers suggest that the stress in the UK system is a lot less than in the eurozone system.

And the US is doing even better, perhaps. Market News reports that the 85-day Term Auction Facility offered more money than the banks needed. The cover ratio was only 0.92, meaning banks bid for 92% of the $150 billion on offer. Well, maybe. The previous TAF was much smaller, $25 billion, and bank stocks still fell even with guaranteed funding.

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Barbara Rockefeller - forex trading reports

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