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US dollar loans fall to new low

THE cost of three-month United States dollar loans between banks fell to a new record low yesterday following the US government's stress test results for the country's top 19 banks and better-than-expected jobs data.

The stress tests showed that nine banks have enough capital to withstand a deeper recession, but that 10 must raise a total of US$75 billion in new capital to withstand possible future losses.

Though the results were more or less as anticipated following a series of leaks earlier in the week, there was a notable sigh of relief that they were out in the open after weeks of speculation.

Further relief was stoked by the news on Friday that 539,000 US jobs were lost in April, much less than the 699,000 recorded in March.

The British Bankers' Association said the rate on three-month loans in US dollars - known as the London Interbank Offered Rate, or Libor? - fell 0.02 of a percentage point to 0.92 percent.

The three-month sterling rate fell 0.01 of a percentage point to 1.41 percent while the equivalent rate for three-month loans in euros - known as the European Interbank Offered Rate, or Euribor, - fell 0.01 of a percentage point to a new low of 1.30.

Gradual drop

Interbank lending rates affect the wider economy by determining the costs of loans to households and businesses.

They had spiked higher since the start of the financial crisis, and have only been falling gradually as governments and central banks globally announced a raft of measures to stimulate the global economy and financial sector.

All three rates are well down on their peaks after big interest rate cuts from the US Federal Reserve, the European Central Bank and the Bank of England. As well as falling sharply, the spread between the Libor rates and the market's hopes for the key rates in three months have narrowed sharply, indicating banks are more willing to take on risks.


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