Transcripts

Reducing Interest Rates Goes Global

SUSIE GHARIB: One topic likely on the president-elect's agenda, the state of the credit markets. There was an encouraging development today, big rate cuts by central banks overseas to boost lending. The Bank of England slashed its key lending rate by 1.5 percent. The European central bank cut its benchmark rate by 0.5 percent. As Erika Miller reports, while credit conditions are slowly improving, it could still be a long time before things return to normal.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Whether credit conditions are getting better depends on who is doing the borrowing. For banks, things have improved dramatically. The three month London Interbank offer rate, LIBOR for short, now stands at 2.39 percent. That's the lowest level in four years. A month ago, the rate was more than double that. Credit expert Andy Brenner says it's significant development.

ANDREW BRENNER, CO-HEAD CREDIT PRODUCTS, MF GLOBAL: It's getting more normal. A lot of people around here think it will go down towards 2 percent. But the big gains have been made and a lot of it has to do with the fact the government has initiated programs to stabilize banking systems on all shapes, sets and forms.

MILLER: Interest rates have also fallen sharply in the commercial paper market, a crucial day-to-day funding source for many U.S. companies. Experts say the Federal Reserve's unprecedented offer to buy highly rated commercial paper is what's bringing rates down.

BRENNER: A lot of that commercial paper is being sold exclusively to the Fed under their three-month program. The commercial paper market without the Fed being involved would be significantly higher in rates than they are today.

MILLER: But credit doesn't seem to be getting easier for many consumers. In fact, for those relying on credit cards, it's probably getting worse. Issuers have generally been raising interest rates, cutting credit limits and tightening lending standards due to rising defaults. And as many would be homeowners know, it has also become much harder to qualify for a mortgage. Melissa Cohn, owner of Manhattan Mortgage, says lenders are becoming even more picky.

MELISSA COHN, OWNER & PRESIDENT, MANHATTAN MORTGAGE: Banks are demanding that you make a bigger down payment. They want to see that you've got more equity in the purchase. They want to see that you've got good credit. They want to see that you can verify your income and that shows stability of income.

MILLER: Experts predict mortgage lenders won't ease their standards until the real estate market improves. Lenders want to have confidence the collateral backing their loans is rising, not falling in value. Erika Miller, NIGHTLY BUSINESS REPORT, New York