Mark Chilton, managing director of Homeowner Mortgages, said that ‘literally trillions’ of dollars of rolling short-term commercial paper loans are due to roll this month and the consequences will signal the future of financial markets, as lenders hedge over giving loans to each other.
Chilton said: “We are part of something so much bigger now. What the US market has done to the global financial markets is far beyond just mortgages now. We’re waiting for the bottom to be found. The market will come back, but this is the telling month. The majority of securities are funded by the short-term commercial paper market. Everyone in financial institutions are worried about lending to each other because they don’t know who has the big holes in finance. After this month, we’ll be able to see how it will go.”
“There will be a market at the end of this, but no one knows what price it will be and what people will be able to lend. Everyone will be there for the long-term, but if they have cut back – is it too far or enough?”
Ray Boulger, senior technical manager for John Charcol, said: “If it’s true that the next couple of weeks is the crunch time, then that suggests it will get easier the week after. The problem with the commercial paper market is that unless you are involved with it, it is difficult to know the amounts involved. The key seems to be that banks are conserving liquidity to meet commitments they have rather than lend to others.”
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