The Money Market in Pictures

As monetary authorities pump liquidity into the system, other measures show that banks are hoarding cash. Everyone's favorite, the 3-month Libor-OIS spread, hit a record this morning:

If you'll remember, there was some controversy over Libor earlier this year, with some claiming that banks were falsely reporting low Libor rates in order to hide how bad of a crunch they were in. In response, ICAP introduced the New York Funding Rate which is supposed to measure the same thing as Libor: the average interest rate at which banks lend to one another.

Here is the spread between the NYFR and Libor since the former launched in June:

Both the NYFR and Libor are created through polling of banks. The chart suggests that either the rumoured shenanigans with Libor are back or the banks polled by the British Bankers Association are under less stress than those by polled by ICAP (which doesn't release the names of those banks). It should be noted that Libor and NYFR are measured differently. The BBA asks banks the rate offered to them while ICAP asks for the perceived market rate. So it could also be that banks perceive the average risk to be greater for other banks than for themselves.

Lastly, here is the range for the effective federal funds rate through yesterday:

Fed funds spiked to seven percent yesterday but that hasn't been the highest level since last August. The New York Fed is getting very good at keeping liquidity going.

Also check out Felix on the doubling of Libor rates overnight.