The governments of the world have put two trillion pounds of taxpayers’ money behind the banking system, in the form of capital injections and guarantees for inter-bank lending. This should have reduced the perceived risk of banks getting into financial difficulty.
Despite this action, the Banks are still not lending money to each other at normal rates of interest or in the volumes expected.
Back in 2007 the gap between LIBOR and the OIS rate was just 0.09%.
Since the onset of the credit crunch, the global debt problem – with regards to business debt, bank debt and personal debt – the gap has widened to 0.23% and then, last Friday, reached a record high of 2.19%.
It means that banks are not prepared to lend to each other and are unlikely to lend to consumers for the purposes of debt consolidation. Consumers with higher levels of unmanagable debts are increasingly finding that an IVA (Individual Voluntary Arrangement) is their only option.
At this time of recession, it’s a shame that the cut in interest rates by the Bank of England isn’t leading to reductions in the cost and the availability of credit for consumers and businesses.