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To: Terry Rose who wrote (17731)	9/6/1998 5:56:00 AM
From: Alex	Read Replies (4) \| Respond to of 117113

Banks warn of world credit crisis By Paul Farrelly and William Keegan Sunday September 6, 1998 Leading banks are warning of a global credit squeeze following the crisis in Russia - which may plunge the world economy, including Britain, into recession. The fear has been sparked by the massive flight of capital into the 'safe havens' of US, UK and German government bonds. To attract finance, even the world's top firms are having to pay higher interest rates. Weaker companies and governments from Latin America to Asia and Eastern Europe face the cash tap being turned off altogether. The markets are nervously awaiting further fallout from Russia, where acting prime minister Viktor Chernomyrdin faces a second parliamentary defeat tomorrow in efforts to form a new government. The Japanese banking system is also in crisis. As a result, the US central bank, the Federal Reserve, is now facing growing calls to cut interest rates. "We are certainly concerned about a credit crunch in the US and increasingly in the UK," said Giles Keating, chief economist at investment bank Credit Suisse First Boston. "Interest rates are going up rather than down just at the wrong time, when deflation threatens." Late on Friday, however, the International Monetary Fund offered no comfort to Russia. Japan's finance minister also came away empty-handed from a meeting in San Francisco with Treasury Secretary Robert Rubin and Alan Greenspan, chairman of the Federal Reserve. Greenspan said the US economy could not remain unaffected by global turmoil, but the Fed was still considering "the potential ramifications of ongoing events". In the UK, Chancellor Gordon Brown would have to invoke emergency powers under the Bank of England Act before he could join in any round of interest rate cuts within the G7 group of leading industrial nations, official sources said. As a result of Brown's own legislation last year, the Bank of England's Monetary Policy Committee is committed to making interest rate changes on the basis of domestic inflation targets only. The MPC is expected to ignore calls for cuts when it meets this Wednesday and Thursday, and to leave base rates unchanged at 7.5 per cent. This is despite an analysis, presented to the MPC by Bank of England staff on Friday, drawing attention to the deteriorating world economic picture. This weekend jitters are most acute in the US, whose seven-year boom threatens to stall, with dire consequences for jobs and growth in the rest of the world. Last week, Barclays chief executive Martin Taylor warned that losses in Russia and Asia might lead to banks reining in lending. Barclays has so far lost œ250m in Russia, part of the œ5bn of write-offs already announced by banks worldwide. US banks' lending to Latin America, however - where fears of capital flight are escalating - dwarfs that figure. Last week Columbia became the first country there to devalue its currency, raising renewed concerns over Brazil. US banks shares went into a tailspin on Wall Street, joined by Spanish banks on the Madrid bourse. Venezuela, whose currency has been under intense pressure for weeks, launched a immediate round of public spending cuts. "No one expected Russia would have a domestic default. Now that one government has done it, will another be tempted to have a go? That will really crucify everyone else," one senior banker said. reports.guardian.co.uk