According to Felix “Fishy” Salmon, the volume of lending in the London interbank market has gone from £640bn to £249bn since the credit furt hit in September. Say a 60 per cent cut.
What percentage of that book of business does the City take as its turn? How much of that is spent or retained in the UK? This really isn’t good news.
Basis points. LIBOR lending is like the coking coal of the financial services industry – one needs a hell of a lot of it and it’s decidedly inconvenient to run out (which is why this is quite serious stuff) but nobody is making vast amounts of money out of LIBOR alone.
Its not good news in the wider economy (credit is going to shrink), but interbank lending is precisely that – banks lending other institutions short term loans to cover day to day liquidity problems. AFAIK, there’s nothing as formal as a market.