Monday, December 03, 2007

Banks Show Fear

In a clear sign of fear, banks are asking their top UK corporate clients not to draw down their lending facilities as they approach the year end.

The banks claim this "advice" is to help the banks preserve their balance sheets. In reality the "advice" is being offered because the banks have precious little liquid funds to facilitate an extension of loans to their clients.

Citigroup was one bank that asked it clients not to use the drawdown facilities. A spokesman told CNN:

"Citigroup honours its commitments to its clients but, as part of our normal business, we discuss with clients the potential use of our balance sheet. This is standard industry practice."

The banks fail to recognise that they have got themselves into this mess, and are the only ones with the ability to get themselves out of it. They need to start lending to each other again.

The reason that they have cut back on interbank loans is because they are frozen with fear.

Roosevelt once warned:

"We have nothing to fear, but fear itself."

This crisis can be resolved if the banks show leadership, courage and backbone. They need to give history a nudge and make a bold move to increase interbank liquidity.

Who amongst the bankers has such courage and backbone?

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