In yet another sign of the earthquakes shaking the financial markets this week, the London interbank offered rate (LIBOR)--the rate that member banks of the British Bankers Association charge each other for large loans--more than doubled on Sept. 16, from 3.10 percent to 6.44 percent. That jump is the largest on record, said The Wall Street Journal.
Central banks responded the next day with an infusion of $200 billion to try to unfreeze bank lending, and the overnight rate fell. The three-month LIBOR remains high, however, and was only slightly affected by the central banks’ actions. If LIBOR remains at a high rate, access to capital for healthcare providers “will be limited or in some cases not available at all,” said HFMA president and CEO Richard L. Clarke, DHA, FHFMA. “Default rates on auction rate securities, variable rate demand bonds, and pricing of bank letters of credit often are based on LIBOR, which could indicate an increase--maybe substantial--in interest cost, and could foretell increased default on bonds, which in the past has been very unusual.”
The LIBOR jump is a reflection of the shift in capital for very low-risk investments like Treasuries.
Read the WSJ article (subscription required). Read HFMA leaders’ response to the credit turmoil.
