In the largest rise on record, the British Bankers Association reported that the overnight U.S. dollar inter-bank lending rate (LIBOR) jumped 431 basis points to 6.88%.

Last week, the overnight LIBOR was 2.95%, suggesting a further sharp tightening of credit conditions in the United States.

The news is also confirmed by a report from ICAP, which says the Fed fund rate in the United States opened at 7.00%

This implies that banks are lending to each other far above the U.S. Federal Reserve's 2.00% target.

Furthermore, the three-month LIBOR reached 4.0525%, and the spread between the LIBOR rate and overnight swap market rate climbed to 246 basis points from 219 on Monday.

The news came on the heels of a massive dump of equities in North America after lawmakers rejected a fiscal rescue package that would have allowed the government to purchase illiquid assets from financial agents and hopefully kick-start lending among economic agents.

By Erik Kevin Franco and edited by Sarah Sussman
©CEP News Ltd. 2008