Stress in the banking system

In general over the last few weeks US economic data has been coming in better than expected. Unemployment claims for this week came in at 388K, which is one of the lowest reading this year. Leading indicators today came in at 0.9% vs expectations of 0.6%.

Although the US economy is doing better than expected, we are seeing tighter credit conditions in the global banking system. One measure of stress in the banking system is the LIBOR rate. LIBOR is what big banks charge each other for money. Even though central banks haven’t tightened monetary conditions you are seeing increase in LIBOR rates. That means banks are being more cautious and charging more to lend to each other as they worry about the solvency of their counter party.  Here is a link to the chart of 3 month LIBOR and you can see that it has been steadily rising over the last few months.

3 month LIBOR

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