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Bank collapse shows crunch is still here

By Sarah Engle, Tue 16 Sep 2008 - Published in Banking

The collapse of a leading US bank shows that the credit crunch is not over yet, an economist has claimed.

Speaking on the recent bankruptcy announcement of Lehman Brothers, Michael Baxter, economist at independent research company Defaqto, said: "It will have an impact in as much as banks will be affected by it.

"It probably suggests that the credit crunch is not over or near the end or halfway through as people have suggested."

Lehman Brothers revealed yesterday (September 15th) that it will apply for bankruptcy, after recent announcements predicted the bank will see a net loss $3.9 billion (£2.17 billion) for the quarter up to August 31st 2008.

Following the announcement, the US federal reserve said it is broadening its emergency lending programme in an attempt to calm the markets, while the of England and other European central banks put a total of £28 billion in the financial system.

Mr Baxter suggested that the Lehman Brothers incident could cause further problems, causing banks to be more reluctant to lend to each other.

However, he also claimed the significance of the collapse could be exaggerated, saying that it may not be a sign of more incidents to follow.