What does a credit crunch look like?

Maybe Alex is tired of this topic, if so I apologize.  But Isaac Sorkin sent me notice of this:

What does a global credit crunch look like when it comes down to raw numbers? A 3% quarterly decline in international banking activity. It doesn’t sound like much, but it represents $1.1 trillion–and that was just a snapshot taken at the end of June, before the Lehman Bros. collapse worsened the crisis in interbank lending.

It is also three times bigger than the largest contractions of the past three decades–as long as such records have been kept. After the demise of hedge fund Long-Term Capital Management in 1998, international banking activity fell by 1.2% in the fourth quarter of that year. After the dot-com bubble burst, the contraction was 1%, or $125 billion–chump change compared with today’s banking volumes.

The numbers come from the provisional international banking statistics for the second quarter of this year, released Thursday by the Bank for International Settlements, the Basel, Switzerland-based organization that acts as a lender for central banks.  BIS says most of the decline was accounted for by "short-term interbank credits in U.S. dollars," i.e., banks not lending to each other overnight–the logjam…we have heard so much about being at the heart of the credit crunch.

Note that is only from the second quarter; we’ll see what the third quarter statistics look like.  Here is the BIS link.  Note that second quarter lending was as robust as it was in part because of continued lending from Europe to Eastern Europe and also to Iceland.  That’s more reason to worry, not less.


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