As Lenders Are Squeezed, Borrowers Face Rationing
The Age
Wednesday March 12, 2008
THE latest round of interest rate increases will raise questions about banks not being up-front with their costs and about gouging.
But the problem the banks face now is that money is in short supply. This inevitably forces up the price, and the banks are now passing on that higher price to home buyers and businesses. Because savings here are so low, Australian banks have to go out into the global markets to raise money.One could debate the fact that banks have not made their massive profits encouraging people to save. But it still doesn't diminish the reality that the banks now need to go out into the global capital markets to raise money. The short-term market interest rate that businesses pay when they borrow is rising (it is known here as the bank bill swap rate for short-term loans of up to one year, which also happens to be the price tag banks use when they charge each other for raising money).Yesterday, the 90-day bank bill swap rate jumped to 8.13%.On Friday, before the latest carnage in the US markets, it was at 8.008%. And not only is the swap rate rising but the banks have to pay a premium to the swap rate.Putting it simply, banks are now finding it harder to buy their raw material in global capital markets to maintain lending growth.This is why ANZ chief executive Mike Smith last week warned that the banks could start rationing lending to businesses and home buyers. And that would inevitably flow through.
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