Bankers around the world went into miser mode Tuesday after the defeat of a U.S. bailout plan, pushing an interest rate they charge each other for quick cash to a record level.
The key bank-to-bank lending rate, the London interbank offered rate, known as LIBOR, soared to 4.05 per cent from 3.88 per cent for three-month U.S. dollar loans and to 6.88 per cent for overnight dollar loans, the highest level since tracking began in 2001.
That is especially worrisome because LIBOR normally is just slightly above the U.S. Federal Reserve's target for the federal funds rate, an interbank lending rate. Now, it is more than four percentage points above the target rate of two per cent.
LIBOR, based on a daily survey of banks, is calculated by the British Bankers Association and announced at 11 a.m. London time every business day. It comes in 10 currencies and 15 terms, ranging from overnight to one year.
Financial contracts tied to LIBOR amount to more than $300 trillion US, or $45,000 US for every person in the world.