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Rbs Dollar Borrowing Costs 25% Above Rivals As Libor Rates Soar

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Royal Bank of Scotland Group Plc, the U.K.’s largest government-owned bank, faces borrowing costs in dollars 25 percent higher than some rivals as Europe’s debt crisis stains interbank lending.

The difference among the highest interest rates, paid by RBS, and the lowest, paid by Deutsche Bank AG, for three-month dollar-denominated loans was widest this year on May 26, according to data compiled by the British Bankers’ Association in a daily survey of 16 major banks. Higher borrowing costs for European banks may lead to increased rates for consumers and businesses.

“We have had a number of stories worsening sentiment, the biggest one being the sovereign crisis, which doesn’t strengthen trust between European counterparts,” said Christoph Rieger, Frankfurt-based co-head of fixed-income strategy at Commerzbank AG. “These news-driven events are making it more difficult for euro-zone banks to tap U.S. dollar funding.”

The global financial crisis was triggered by rising borrowing costs for banks in 2007 when the collapse of U.S. subprime mortgages caused credit markets to freeze. That prompted governments in the European Union to pledge more than 5.3 trillion euros ($6.5 trillion) to rescue lenders, raising budget deficits and contributing to the sovereign-debt crisis.

Libor, or the London interbank offered rate, the benchmark for $360 trillion of financial products from mortgages to company borrowing costs, rose for a 12th consecutive day on May 26 and to the highest level since July. The rate was unchanged yesterday.

‘Credit Tiering’

West LB AG, Bank of Tokyo-Mitsubishi UFJ Ltd., Norinchukin Bank and Barclays Plc were among the banks that quoted rates above yesterday’s dollar Libor. Deutsche Bank, Rabobank Nederland NV and JPMorgan Chase & Co. posted the lowest rates.

Michael Strachan at RBS declined to comment, as did Walter Hillebrand-Droste, a spokesman for West LB.

“It is an illustration of credit tiering in the market,” said John Ewan, a London-based director of the BBA. “This shows the market’s estimation of how risky a bank is. We know that there is stress in the markets, and some banks can attract funding at lower rates than other banks.”

RBS had the highest dollar Libor rate yesterday at 0.60 percent. The Edinburgh-based bank, required more than 45.5 billion pounds ($65 billion) in government support during the financial crisis in the world’s biggest banking bailout. WestLB, the German lender bailed out during the financial crisis, had the second-highest borrowing rate at 0.595 percent.

Luckily the taxpayer isn't on the hook for this....

Still the stock market is recovering so it's not all bad news.

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  • 429 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
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