Money-Market Rates Fail to Respond to Bank Measures

The biggest concerted effort by central banks in six years to restore confidence in global money markets is showing little sign of success.

The rates banks charge each other for three-month loans held at seven-year highs for a second day after policy makers in the U.S., U.K., Canada, Switzerland and the euro region agreed to ease the logjam in short-term credit markets. The cost of borrowing in euros stayed at 4.95 percent, the British Bankers' Association said today. That's 95 basis points more than the European Central Bank's key interest rate, up from an average of 25 basis points in the first half of the year.

"The market clearly doesn't believe central banks can do anything about this crisis,'' said Nathalie Fillet, senior interest-rate strategist at BNP Paribas SA in London. "This is not going to be a magical solution to the problem.''

The surge in money-market rates since August is fueling concern that the slump in bank lending will exacerbate a slowdown in global economic growth. Goldman Sachs Group Inc. in a report a month ago estimated losses related to record home foreclosures may be as high as $400 billion for financial companies. If accurate, banks, brokerages and hedge funds would need to cut lending by $2 trillion, triggering a "substantial recession,'' the firm said.