by Joseph Kenny | 11/4/08

Recently, the frozen credit market has shown some minor signs of easing up, but the possibility of a quick recovery is still rather slim at this point. Because the prospects of the credit system bouncing back are still rather weak, lenders are staying low and acting conservative in regards to their operations.

Libor, the interbank lending rate of London, fell by half of its normal value, which suggests to investors and the public that banks are starting to become comfortable with the idea of lending to one another in order to cover expenses. Since this is occurring, it makes it easier for consumers and businesses to obtain the loans they need to make big purchases.

The essential issue behind today's market is that financial institutions and other loaners are fearful of lending money because they don't know if they'll get it back. The mortgage crisis in America was the result of banks and other such businesses lending money to risky subprime borrowers that ended up defaulting on their payments.

Even though credit seemed to have eased up somewhat in recent weeks, a full recovery is still going to take some time. It's going take several fiscal quarters in order to see some significant changes take place, because the economy is currently very strained, and nobody is going to bounce back overnight without having to first cut losses and then work hard towards recovery.

Another problem is that the interbank lending rate has continues to go up recently, surging by as much as 4.82% last Friday. This is in contrast to its value of 2.82% in the month of September. These figures are important to the economy in that they reflect the trend of global banks and the rates they charge when lending money to one another. Just like regular banks at home, if the rates go up it reduces the financial incentive to obtain a loan.