Credit Crisis Eases a Bit

Some progress:

The cost of short-term dollar loans dropped more than expected Monday, a signal that money markets are slowly returning to normal after threatening to derail the global financial system earlier this month, economists said.

The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.05875%, down sharply from 4.41875% on Friday. The one-month rate fell to 3.75125% from 4.18125% on Friday.

Libor, which is set each day in London, is an indicator of short-term borrowing costs in the arcane -- but crucial -- interbank lending market.

The rate remains abnormally high, but it's climbed down from peaks set earlier this month as financial institutions all but halted loans to each other amid fears of further bank failures. The freeze in wholesale funding weighed on other types of lending, threatening a collapse of the credit system.

Later Monday, U.S. Federal Reserve Chairman Ben Bernanke, in testimony prepared for delivery at a hearing before the House Budget Committee, said he was encouraged by signs a severe credit blockage was easing after massive efforts by governments around the world to recapitalize major banks and guarantee short-term bank debts.

"It is too early to assess their full effects," he said, adding that he's confident that the measures will eventually restore trust in the financial system and get normal credit flowing again.

Thanks to Jack Straw.

posted by Ace at 07:43 PM

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