Oct. 21 Update: Second Stimulus in the Works?Around the world, bank lending rates continue to ease despite economic uncertainty, with loosening of key inter-bank lending rates pointing to the stabilization of credit markets.
This comes after Monday's talk of a second economic stimulus package in the U.S. and the French government's injection of $14 billion into its banks to increase liquidity. The Dutch government bolstered ING with an infusion of a $13 billion investment to strengthen the Netherland-based banking giant, keeping it safe from falling victim to the global financial crisis.
Adding to the positive news, the Libor lending rate, the daily average of what 16 different banks charge other banks to lend money in London, fell to 1.28% from 1.51% on Monday. The Federal Reserve's benchmark interest rate is now at 1.5%.
Both Federal Reserve Chairman Ben Bernanke and President Bush spoke on Monday of a possible second stimulus package, Congress may vote on it shortly after the November election.
The White House said President Bush was at least willing to consider a second stimulus measure to follow a $168 billion stimulus measure passed in February and a $700 billion Wall Street rescue plan passed in early October.
The second stimulus package is seen as a much-needed buffer to soften the blow of a long and severe recession. Bernanke told lawmakers that this move seems appropriate given the risk of a "protracted slowdown." Over the weekend, a presidential advisor said that parts of the country are already in recession. The U.S. stock markets closed up more than 400 points on Monday on the talk of another stimulus package.
Also on Monday, the FDIC challenged Washington Mutual's efforts in bankruptcy court to get $4.4 billion from JPMorgan Chase, which WaMu says is part of its bankruptcy estate under its Chapter 11 filings.
After being appointed receiver, the FDIC sold WaMu's banking assets to JPMorgan Chase for $1.9 billion. WaMu now says it is entitled to take $3.7 billion it deposited in Washington Mutual Bank along with $707 million on deposit with the bank prior to it going under. The bankruptcy judge has not ruled on the case.
On Tuesday, the Federal Reserve Board announced the creation of the Money Market Investor Funding Facility (MMIFF) to support a private sector initiative designed to provide liquidity to U.S. money market investors. The MMIFF complements the earlier formed Commercial Paper Funding Facility (CPFF) that will help improve liquidity in short-term debt markets and increase the availability of credit.