Busted: Bankers and The Global Economy

September 3, 2008

A New Banking Crisis for Britain and Europe?

British bankers have began to hoarde their reserves and have become reluctant to engage in the usual interbank lending process that commercial banking enjoys daily. The resulting freeze in liquidity and tightening of credit that will shortly result is reminiscent of the reaction of U.S. bankers during the initial stages of the U.S. mortgage and credit crisis before the Federal Reserve Auction was created.

Apparently, the pressure from bad securitized mortgage bonds continues to rack the United Kingdom bankers. As a result fearful bankers simply shut down the process of usual banking trust, freezing the free exchange of capital that the modern world has grown accustomed to.

In April, the Bank of England offered to take on shaky mortgage-backed bonds in an effort to liquify the frozen banking system. This effort has not worked. Bankers are instead working to prop up their own internal banking instead of dealing with the larger marketplace, another reaction similar to U.S. bankers.

The liquidity freeze points to the distinct possibility of more banking failures in the UK similar to Northern Rock, in which the British government nationalized the debt. Lack of confidence is once again becoming the buzz word in British banking as fears mount. Fears in the commercial banking community are showing their reflections once again as a global financial slowdown or recession looms. ~ E. Manning

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