The cost of borrowing in dollars overnight more than doubled to the highest since 2001 amid speculation the collapse of Lehman Brothers Holdings Inc. may cause more financial institutions to fail.Sinking ship, meet rats.
The overnight dollar rate soared 3.33 percentage points to 6.44 percent today, its biggest jump, according to the British Bankers' Association. Lehman filed for bankruptcy yesterday after succumbing to mounting credit-market losses.
``It's all a mess out there, it's unbelievable, it's very tough,'' said Padhraic Garvey, head of investment-grade strategy in Amsterdam at ING Bank NV. ``There really is no sign of this going away. If the Fed were to cut rates, it's not necessarily going to solve anything.''
Demand for short-term cash is surging even as central banks seek to revive lending through emergency cash injections. The increase underscores how, far from improving, the credit squeeze that started in August last with the collapse of the U.S. subprime-mortgage market is worsening.