ok. this is confusing. Aren't banks foregoing fed funds 1.15 by lending lower than that? That doesn't make sense... Please explain more. I thought interbank lending was seized as well.
the interest hike 'will become effective for the maintenance periods beginning Thursday, October 23.' the EFF started to move up, I dont know why it isn't there yet
I misread your previous message. That is why I was confused. You are saying the recent move to pay higher interest was a response to banks lending below fed funds... Which makes sense. I imagine it will move to FF target - .35 ... Now here is my question: A flood of money below fed funds tells banks *are* willing to lend to each other. That is not consistent with what the press has been telling. What's going on with interbank lending minus the story of these fed funds. I thought 'paralyzed with fear' was the mantra.
10/24 10/23 Change OVERNIGHT 1.28125 1.20625 .07500 1 WEEK 2.16250 2.19750 -.03500 2 WEEKS 2.48500 2.55375 -.06875 1 MONTH 3.24000 3.25875 -.01875 2 MONTH 3.37875 3.38625 -.00750 Overnight libor barely above what the fed pays on reserves. Illuminate more. Looks to me banks are scared shitless to lend long (more than a day!) ... Overnight isn't the problem. Earning 1.15% is better than 0%. If I am not lending one month out with excess reserves, I am forgoing 2% or so instead of 3 with this new policy. The more I think about this, this is about banks holding onto foreclosure properties and bad assets, and they will need a LOT more capitalization before they lend out to consumers.
the fed funds market is a overnight market(1 day loans). while libor can go from overnight to many months maturities. longer term libor maturities suffered the worst. the overnight libor had 'spikes'(like the fed funds 6% spikes) but it crashed right after it. overnight libor has crashed to 1.27% right now, plenty of lending going on. guess everybody thinks they can get their money back before the other bank goes under watching their stock/cds etc http://www.bloomberg.com/apps/quote?ticker=US00O/N:IND