Monday September 3, 2007 Guardian
Barclays' actions in the money markets will be watched closely this week following a thinly-veiled call from Bob Diamond, chief executive of the bank's investment banking division, for the Bank of England to intervene to boost short-term liquidity.
Mr Diamond identified rates in the money markets as a critical issue in the current liquidity crisis.
"One of the big issues we face as a market - not just Barclays, not just sterling - is that 90-day commercial paper is moving to one-week commercial paper, 30-day commercial paper is moving to one-day commercial paper, six-month deposits are moving to five-day deposits," Mr Diamond said in an interview with the Sunday Telegraph.
The movement in three-month Libor rates - London Interbank Offered Rate, or the rate at which banks lend to one another, unsecured, for 90 days - in the past fortnight has been quite extraordinary.
The price would normally be a premium of about 0.15% to where markets think the Bank of England's base rate, currently 5.75%, will be in three months' time.
In recent months, three-month Libor has been just above 6%, but two weeks ago it soared to 6.6% and has since stayed there. Friday's price - 6.69% - was the highest for eight-and-a-half years.
In an analysis of central banks' actions in combating the problem, Mr Diamond notably excluded the Bank of England from praise. "For the recovery to continue we need to find more ways to get liquidity into the short end of the curve," he said. "That's down to confidence, and that's down to the central banks. We've seen thoughtful moves by the [US] Fed and the ECB."
Mr Diamond's remarks raised eyebrows among money market professionals partly because of Barclays' own bidding last week during the daily setting of the three-month Libor rate, the most closely-watched benchmark of short-term interest rates in London. Three month Libor - or London Interbank Offered Rate - is... [continues]
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