The global money market crisis, which was triggered by
subprime-mortgage defaults in the US, has resulted in one
of the most dramatic periods in the history of the banking
sector. Despite governments and central banks around the
world pumping hundreds of billions of dollars into the sector,
confidence in financial institutions has rarely been lower.
One of the most dramatic effects of the crisis has been financial
institutions' loss of confidence in their peers. In late 2008,
interbank lending had all but dried up, and some of the
strongest players in the industry were forced to go cap in
hand and beg for capital injections from their governments.
Several leading banks were even semi-nationalised or fuily
nationalised. This has had a dramatic impact on many of
Rabobank's customers - both financial institutions and cor-
porate clients. The big question now is: how will this affect the
banking sector and who will emerge winners from this crisis?
Banks have simply stopped trusting each other. 'This has made
funding very difficult," says Rabobank International economist
Elwin de Groot. "Long-term funding has dried up and banks
are now much more reliant on short-term funding. The current
aversion to risk is clearly shown by the sharp rise in risk premiums,
which virtually trebled in November, leading to a big increase
in the cost of funding."
ISSUE 18
THE WORD
