mpc.theyserveforyou.com

mpc: 6 It was not clear how long these disrupted conditions would persist. The deterioration in the US housing market, and the attendant rise in defaults and foreclosures, might carry on for some time. Committee members noted that eventually market participants should be able to re-evaluate the risks involved, re-price the relevant securities and probably re-assess the price of credit more generally, discriminating better between different assets. The adjustment process should be temporary but overly compressed credit risk premia in markets had been an issue for some time, as discussed in past issues of the Bank's Financial Stability Review and Report, and a sustained re-pricing of credit risk would not, in itself, be unwelcome. It was likely that a degree of de-leveraging by some market participants would take place, which could affect a wider set of financial markets while the transition was made. The faster all these changes happened, the sooner market activity would start to normalise, and it was possible that this might happen quite quickly. Once these processes were complete, the demand for additional liquidity, and the associated rise in LIBOR spreads, should fall back. But September was a month when a large proportion of ABCP was expected to mature in a short time interval so, in advance of that, money market liquidity could become increasingly concentrated at overnight and very short- term maturities, unless ABCP conduits were able to re-issue paper, or banks could put alternative funding in place. And some of the structured investment vehicles had less access to committed liquidity lines (although they would also have a higher proportion of medium-term funding). Quarter- end results for many financial firms would reveal the extent of any losses through this period, although the valuation of some instruments was difficult where there was little trading taking place. So the adjustment path might well not be smooth.