Skip to main content

Hoarding by banks?

So now it seems the central banks are angry that they can't get banks to lend, in spite of the Federal Reserve's recent rate cuts and newfangled lending facilities.

For some strange reason (like, I don't know, fear of insolvency?) banks and other financial institutions don't want to make a bunch of new loans in the midst of a steadily worsening credit crunch.

Here's how the FT put it: "Hoarding by banks stokes fear over crisis".

"Central banks' efforts to ease strains in the money markets are failing to stop financial institutions from hoarding cash, stoking fears that the recent respite in equity markets may not signal the end of the credit crisis.

Banks' borrowing costs - a sign of their willingness to lend to each other - in the US, eurozone and the UK rose again even after the Federal Reserve's unprecedented activity in lending to retail and investment banks against weaker than usual collateral and similar action in Europe."

I see the word "hoarding" coming into play here, as it always seems to when demagoguery is the order of the day.

In this instance, it's the banks who are fearful to lend, and are now said to be hoarding cash. The implication here is that they should stop being so miserly and start lending like crazy again.

But is it wise for banks to start lending again at a time when the whole financial sector is trying to shrink its exposure to risk? It looks like the Fed and other leading central banks are hoping to pump the system back up with liquidity and keep the "good times" going at all costs.

So what we have is a battle between the central banks, who want to keep money and credit conditions easy, and the private sector, which wants to retrench and tighten liquidity.

For a more detailed examination of this idea, see our recent post, "Can't get a loan? You're not alone".

Popular posts from this blog

Nasdaq credit rating junked.

S&P cut Nasdaq's credit rating to junk status citing debt burdens and its questionable strategy to buy a controlling interest in the London Stock Exchange. Financial Times reported that the exchange's counterparty credit & bank loan rating were lowered fromm BBB- (lowest investment grade rating) to BB+. The change will increase Nasdaq's borrowing costs should it wish to pursue aquisition targets. For an earlier look at the exchange consolidation trend that brought about Nasdaq's push for a stake in the LSE, please see "Exchange fever" .

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean ...

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4. ...