October 23, 2008

International bank lending shrank by 3 per cent between April and June, the sharpest decline in over 30 years, revealing the depth of the credit squeeze between lenders before the recent series of government-led bailouts. Figures released today by the Bank for International Settlements (BIS), the Basel-based organization which acts as a lender for central banks, show those borrowers' total international claims declined by $1.1 trillion to $39.1 trillion. Lending to the US, the UK, the Caribbean and European offshore centers shrank by 7 per cent. The BIS said this was due to declines of $564 billion in cross-border US dollar claims and $189 billion in pound sterling claims.

Since then, global governments have acted to increase lending between banks, through a series of measures to strengthen lenders' balance sheets. The US Federal Reserve has also pledged to make billions of dollars available for central banks to pump into their respective financial systems to help bring down the cost of borrowing the greenback. Today's figures represent the sharpest contraction in international banking activity since the BIS began its records in 1977.Previously, the biggest declines were in the second quarter of 2001, after the dotcom bubble burst, when lending shrank 1 per cent or $125 billion of the total at the time, and in 1998, when it dropped 1.2 per cent following the failure of the American hedge fund Long Term Capital Management.