Banking Crisis Deepens
News Brief – October 6, 2008
The credit crisis deepened today as shares in banks across the world tumbled and fears over the future of the entire financial system took hold.
The string of fresh problems for lenders came as Germany joined Ireland and Greece in guaranteeing savings deposits.
Bad news over the weekend from Europe's banks, coupled with doubts over whether the $700bn Wall Street bailout would succeed, triggered waves of selling from Japan and Shanghai to London and Paris.
The 50-billion-euro (68-billion-dollar) bailout of the fourth biggest German bank Hypo Real Estate and the takeover of Dutch-Belgian bank Fortis by French giant BNP Paribas only added to a growing sense of alarm.
Trade on Russia's stock market in Moscow was also suspended today after its main index fell more than 15 percent.
While Iceland, whose economy relies heavily on the financial sector, suspended trading in all financial shares including three major banks amid reports of a government rescue of the stricken banking sector.
"There is all-out panic," said Adrian van Tiggelen, ING senior strategist in the Hague.
"Everyone had hoped that after the acceptance of the package in the US and the bailouts in Europe things would calm down," added van Tiggelen. "But in effect, there are still strong fears of the domino effect."
Bank of America chief economist Mickey Levy said it was hard to overstate the threat posed by the market turbulance.
"Strains in funding markets for banks and other financial markets have now escalated to such an extent that all major industrialised economies of the world are either in or at the brink of outright recession," he said.
Earlier Monday the euro fell to a 13-month low of 1.3551 dollars. While oil prices slipped below 90 dollars a barrel amid fears of a global downturn.
Meanwhile Britain’s Finance minister, Alistair Darling called an emergency meeting Monday to consider the partial nationalisation of banks.
While in Belgium trading in shares of Fortis were suspended, the day after BNP Paribas took a controlling interest in the troubled finance group after an emergency deal with the Belgian and Luxembourg governments.
Central banks continued to pump tens of billions of dollars into interbank money markets that are now essentially on life-support from state institutions because commercial banks are too frightened to lend to each other.
Last updated 08/10/2008